they should explain why even after crippling sanctions on iraq, for 10 years, over 10 years that killed over 1 million iraqis, half of whom were children, that the iraqis didn't rise up to overthrow saddam hussein. that only happened because of the u.s. invasion of iraq. but then even after the u.s. invasion and the toppling of hussein -- pusan -- a secular liberal government that was willing to cede some of its sovereign rights to a foreign power. some claim it's all different now with the islamic republic because the arab awakening, the demonstration effect will work together with sanctions to find the break the back of the islamic republic. but this ignores the fact that the islamic republic sees the

arab awakening as hugely positive, hugely positive. iranian policymakers and analysts believe that any arab government, any arab government that becomes at all more representative of its populations beliefs, concerns and policy preferences will, by definition, be less enthusiastic about strategic cooperation with the united states, let alone with israel, and more open to iran's message of foreign policy independence. what policy elites here ms., is the islamic republic does not need governments to be more pro-iranian. that's not what they need. they just need these governments to be less pro-american, less pro-israel and more independent. but you often hear in washington

in particular that the arab awakening means that iran is going to see. it's only arab allies. or as candidate romney says, evidently without looking at a map, iran's only outlet to the sea. this reflects how it is american elite's, not those sitting in tehran here in denial about basic political trends in the middle east, let alone basic geography. by the islamic republic does not believe that serious bashar al-assad will be overthrown by syrians, the key point is that even a post a sovereign government would not be pro-american or pro-israel. and it may even be less seen on keeping the order with israel quiet. and unless a post assad government were taliban like,

serious foreign policy will be just fine for the islamic republic. even more significantly, americans have a hard time coming to terms with the fact that today iran's most important arab ally is not syria. it's iraq, the first shia arab led state in history is iraq, but we never mention that. the united states cannot come to terms with the fact today that for the first time america and one of america's key regional pillars, egypt, is in place strategically. you doesn't mean they have to become pro-iranian. they are just in play. they're no longer reflective pro-american the iranian military the first time in 30 years can go through the suez. iran doesn't need syria anymore. american elites have a very hard time coming to terms with these

facts. and an even harder time coming to terms with the reality that the arab awakening is accelerating erosion of american standing and position in the middle east, not iran's. but rather than face this reality, americans embrace, particularly elites here in washington, embrace the logic defined proposition that the same drivers of political change and powering islamists in arab countries will somehow transform the islamic republic into a secular liberal state. it is a logic defying proposition. still, reality is what it is. on the eve of 9/11, just over 10 years ago, every middle eastern government, every single one was either pro-american, in negotiations to become pro-american, are anti-iranian.

every single one. today the balance of power has turned decisively in iran's favor. and not because they have fired a single shot, not a single shot, but because of election, elections that have empowered people in their own country. so in afghanistan, in iraq, in turkey, in egypt, in gaza, in tunisia and lebanon, iran is dealing with governments today, not just compared to 10 years ago but compared to two years ago that are no longer reflective lake pro-american or anti-iranian. that is a huge boost to iran's strategic position, no matter how you look at it. still, some commentators argue that the sanctions and the arab awakening somehow will force the islamic republic to make concessions that the united states and israel has demanded of it. the main flaw with this argument

isn't even the iraqi sample that sanctions and isolation never led to any change in iraq is decision-making, it's not even the fact that there is no basis in history of the islamic republic for making any kind of concessions of these sorts. the main flaw is that would put forward as evidence of imminent iranian concession is not new. unlike others in the middle of these of the islamic republic, or iran at the time, was an early signatory of the nuclear nonproliferation treaty. and the islamic republic has been willing to negotiate with the united states, and others, about their concerns over iran's nuclear program. as long as iran wouldn't have to concede its international recognized sovereign and treaty rights. the islamic republic negotiate with what was called the e.u. three at the time, france,

britain and germany, and the early 2000s to spend its 3%, 3% enrichment activities and did so for nearly two years. later, the islamic republic negotiate with retail and turkey to in effect suspend its 20% enrichment activities. but it was the united states, not the islamic republic that rejected negotiated outcome of those talks. steel, tehran continues to be open to a more comprehensive deal regarding its nuclear program. but again, as long as the united states accepts iran's right to pursue internationally safeguarded iranian enrichment on its own territories. in this regard initial issue is actually quite simple. if the united states accepts iran's right to pursue internationally safeguarded enrichment on its own territory, there could be a few. idea with intrusive verification and monitoring, and possibly limits on iran's 20% enrichment

activities. but the key problem here is that the obama administration, like the bush administration before it, refuses to acknowledge clearly iran's right to enrich uranium on its own soil. even if the obama administration, and there are rumors they are think of doing this after they're elected, were to offer iran a bigger carrot, as if the iranians were donkeys, and a final shot at diplomacy, there is no indication that the obama administration is willing to clearly recognize iran's right to enriched uranium on its own soil. and, therefore, there won't be a deal. even if there's no deal and iran doesn't collapse, some policy elites continue to posit that sanctions and their version of diplomacy is all worth it. it is worth any and because

iranians, middle eastern publics, and americans most importantly will come to see that iran's is suffering and inability to get a deal on the nuclear issue is the iranian government's fault. and, therefore, it will be understandable, and even justified for the united states in the end to strike iran militarily. but we should have no illusions about the strategic consequences of an overt war with the islamic republic. any new overt use of u.s. force to disarm yet another middle eastern state of weapons of mass destruction that it does not have, while staying quiet about israel's 200 plus nuclear weapons arsenal, would elevate already high level of anti-american sentiment in the middle east, threaten our remaining allies there, and render their cooperation with the united states practically impossible.

and u.s. military actions against the islamic republic would have no international legitimacy. know when you and security council authorization and no allies at issue, and maybe, i said maybe, the uk you are reading the press this month with their latest legal opinion. the larger part of the international community, and remember, 120 of the un's 193 member states are part of the non-aligned movement who voted to have -- as their chair. and they're already on record as saying he would consider an attack illegal, and that would ratify america's image as an outlaw superpower. this is really important today, compared to even a few years ago. because a few years ago, the united states was still an unchallenged superpower. and other countries use mattered less. today they matter more,

including iran's views. they matter more. and herein lies the real challenge, nobody in washington has faced. how do we work with, with an islamic republic of iran, or even in egypt, for that matter, acting to promote its interests as it sees them as an independent country, not as many in washington wish it to be. thank you very much for your attention. [applause] >> thank you, hillary. our next speaker is dr. trita parsi who is the founder and president of the national iranian american council, nic -- niac, that is a vocal proponent of dialogue and engagement in the u.s. and iran.

and dr. parsi is the author of an award-winning book, the secret dealings of iran israel in the united states, published in 2007, and has a new book this year called the single role of the dice, obama's diplomacy with iran. both from deal university press. i should say that all these panelists are also quoted in the major media frequently. so that's another thing. i don't mention of a each one at a time, but all of them. >> thanks much. is a great pleasure being here. i think it's going to be quite an interesting q&a following this. i'm going to cut my talk perhaps a little bit short and just going to some of the most important point and then leave as much as possible for the discussion afterwards. the panel asked what ways have the united states or the gcc been able to close to some of its objectives, and have effective policies, vis-à-vis

iran. it's a good question because it reminds us to ask ourselves what are the objectives. and the object is that oftentimes are talked about tends to be micro-objectives, very tactical, and we can to forget the larger strategic picture. if we take a look at the larger strategic picture of making sure iran does not get closer to nuclear weapons capably, having a two state solution that is feasible, to have stability in the region in the persian gulf, it's difficult to make the argument that over the last 10 years, we have walked particularly closer to the object is. in the case of the united states and iran, about what the bounce is, who is winning right now or losing right now, i would just make the presentation on why i think this problem that is eminently resolvable has just become more and more difficult over the last couple of years but and i think it largely come

simply sides, i'm sympathizing a bit perhaps now, pursuing a perpetual policy, both sides have a policy in which the major component, the main center component that is on pressure. and by pursuing this pressure policy, there's this constant, endless search for a game changer. for something that enables one side to either force onto the other deal that it otherwise would not accept, or frankly just make sure that the other side -- [inaudible]. and in this search for this game changer, what i think by now should be clear is that even though both sides at times have been quite successful in achieving something that has at least marginally change the game and certainly puts a lot of pressure on the other side, it has not had the distance to translate that into a bargaining strength at the negotiating table and cash in for the type of a deal that nevertheless would be quite attractive for

it. every time, either site is managed to score such a point, what has happened is that it has been struck by winner's curse. as one major effort source to pay off, rather than going back and trying to see if we can get a better deal, both sides and become a little bit greedy and asked itself why don't we just do this a little bit longer and see what else we can get. we are facing that right now in washington. there is a perception that these sanctions have been tremendously successful. i would make the argument that they have put it immense amount of paint on the iranian side, and the minute that the story started, in "the new york times" and the "washington post" that iran and economy is indeed in great trouble, the goal posts tend to shift a little bit. matters no longer by getting them back to the table are getting a deal, but now more and more open question marks were raised about can this actually lead to regime change, cannot

have it for a couple more months to see what else we can get. as that happens, the interest of the suffering party then decreases to engage indigo should as well because the negotiations can become a negotiation for the terms -- and instead they tend to define their search for the next game changer. something that will once again be able to turn the table and find an exit way from the very situation there and what now but look what happened after the talks collapsed in 2010 and 2009 if the iranians started and enrichment at the 20 some of the there were question marks, significant question marks whether the iranians were succeeding in doing this but they managed to do it. the western imposes sanctions on iran hoping that would change the nature of the relationship. it didn't. once they negotiate instead a ringing to significantly increase their demand, putting

preconditions for talks in essentially all sanctions need to be lifted don't have any conversation about the nuclear issue. instead, it would go back to the table and then the west manages to get its game changer, which is through the help of saudi arabia, a lot of pressure on the europeans and others, all sanctions have been imposed on iranians. economic pain is inflicted in a manner that is not happen for quite some time, and they truly are suffering in many different ways. and at this moment ends the question is, anti-saloon league to a situation in which we can translate this into a negotiating benefit, or whether we will once again perhaps, get too greedy and hope you can achieve more. and meantime the rings will have time to find some sort of a game changer. and if you just take a look at what is happening in the media right now, there seems to be an effort on the iranian side to start hitting back in a way that perhaps wasn't the case a year

and half ago. whether it is cyber warfare against saudi arabia, whether it is flying drones over israel, or other things that are happening, we have not seen any indication, not yet, and i would argue as a will and a couple of seconds, that it's highly unlikely that we will see and measure from the iranian side that would be anything recently the type of consideration that i think increasingly seems to be demanded in washington. just keep in mind what came out in the near times i think it was yesterday or today, that they are proceeding relatively fast to finish the fordo nuclear plant. by vatican close or closer to the israeli breadline can but they're not moving closer to the american red line. so they're expanding their program, exasperating tensions that already exist between the states and israel, without doing anything against any excuse on the american side to say that they're getting close to the americans. these are not the actions of an entity that seems to be just

about to -- [inaudible]. how long can the arenas tolerate this about of economic pressure? inside the country are becoming very difficult. the main element inside the country, there are suffering, the middle-class, in the middle class tends not to be supportive of the regime in the first place. the regime itself has put up with several different programs to shift the pain of the economic mismanagement as well as the sanctions to be borne by the middle class rather than by the lower class. the lower class tends to be the backbone of their support. some of the theory behind the idea that this type of pressure eventually will bring the iranians a situation which they will have to accept western demand is summed up by saying that the iranians don't cave under pressure. they only gave under immense pressure. and the analogy than 50-point to what happened in 1989. when khamenei after years of having said there would be more war, war, war, finally had to

concede and accept the u.n. resolution to put an end to the war, something that he likened it to drinking a cup of poison. so we have to we create that scenario in order to get the iranians to accept the demands. that is the proposition, the theory behind. beyond the moral questions of the collective punishment that the sanctions are bringing onto the population in iraq i think has made it quite clear that they would like is a different political order, there's several differences between what we're seeing today and what existed in 1989 that i think renders it quite unlikely that their strategy will end up becoming the type of the game changer that i think it is intended to be. 1989 when how many accept drinking a cup of poison, it did so because he knew exactly what would happen if he did.

if he drank a cup of poison, the war would end. there was no question mark about it. is that the prophecy that is put in front of the iranians right now? i don't think that's clear at all. if the iranians were to capitulate right now i think they have a clue of what it is they would get. or not get. into conversations, there has been discussions that perhaps down the road may be enrichment on irene cho can be accepted. perhaps at some point, we don't know when, some of the sanctions, could be lifted. secondly, to president obama's credit, he is no saddam hussein. which means that when saddam hussein made a decision, you either agree with it or you would die if you're inside the iraqi political establishment.

saddam did not have to deal with a pesky congress nor did he have to do with an israeli prime minister. as a result, the iranians have the confidence that saddam had the strength to be able to live up to his end of the bargain. that is not the perception that the iranians have, rightly or wrongly, about president obama. can president obama promise the lifting of sanctions, most of these sanctions that really are hurting their rings have gone through congress and now to be lifted if there's a congressional district. can anyone here remember last time congress lifted sanctions in a swift manner? moreover, the principal level that establishes the principle of reciprocity. the idea that any reversible concession from the western and had to be matched by a reversible concession from the iranians. anything the reversible from the u.s. and has to be matched by and a reversible concession from

the iranians the the conversations that should be lifted up to be lifted at least in the short run have mostly centered around what sanctions wafers the president could use. which is ultimately reversible. in fact, would probably have to be renewed every six months or so. and then you would be a new president at some point in the united states and there's no clarity or guarantee whatsoever, that that president will respect the previous decision. these are some of the challenges that i think her face in the negotiations. if there is a window of opportunity, however, after november 7, up until the iranian new year, if president obama wins, there is going to be a window of opportunity to move very quickly for negotiations. in fact, one meeting has already been scheduled. this will be an opportune time because it is right at a moment in which obama's political maneuverability will be at its maximum packet ring is we'll be right before injuring their new year and then after that their

election season which may once again be politically perilous. and if that opportunity can be utilized it will be very interesting to see both sides have the distance, both sides claim that they're winning and they're doing great. they all have their rhetoric and talking points as to why the arab spring has been fantastic for them. what do they have the ability and the discipline to go to the negotiating table and translate whatever strength is that they have into a strong negotiating position, and then change that strength into an actual view. i suspect if we don't see something, i don't think we'll be in india at all before the iranian new year in march, but if there isn't any progress before, during this period, it's going to be quite questionable as to what moment it can be achieved again. then the political circus of all sides will start again and negotiations are going to once again become the victim of domestic politics. thanks so much. [applause]

>> dr. kenneth katzman has agreed to be the discussant. he will be commenting on each presentation to give specialist with the congressional research service, senior middle east analyst of the u.s. congress, provides reports and briefings to members of the congress and their staff, has also served at princeton on the majority staff of house international relations committee, and is the author of a number of books and articles and is very well known and was here in washington. so kenneth, i give it to you. >> thank you very much, and first let me say on my comments are in my personal capacity rather than as a congressional person. i do have a few comments of my own and then we'll get into discussion to treat as comments though i would like to say that sanctions on iraq, afghanistan and libya were all lived within about one year of the fall of the regime's that were

concerned, so i think if you look to the way sanctions were, and i do a lot of work on this, many of you have seen my iran sanctions report for congress i'm sure. the administration and executive branch still have quite a bit of discretion as far as lifting sanctions, start using sanctions should it come to that. i just want to say, the fundamental principles and a few comments, mainly on sanctions, effective sanctions. the fundamental principle of u.s. policy to iran is to compel the leadership to choose between forging an acceptable compromise on its nuclear program, or essentially going broke. we are now getting real world test of that proposition. iran is on its way to going broke. its oil exports are now below

900,000 barrels a day, a drop of more than 60% of its 2011 average of about 2.5 million barrels per day. oman, which has what, six or 7 million people, so maybe 10% of the population of iran, is exporting 700,000 barrels a day. so if iran falls much further, which is likely in the next few months, it will be exporting less oil than any single gulf state, other than bob graham. and if you add up the populations of all the gulf states, it is still only about maybe 40% or so of the population of iran. iran's population is about -- iran's production of oil has fallen to 2.6 million barrels a day. down from about, it was about a level of 4 million barrels a day previous years. there was virtually no new investment in iran's energy

sector except by a reigning firms themselves. international firms have pulled out in droves, and not only investors and also suppliers of basic parts, equipment and services due to not only u.s. but also european union come japanese, south korea and other sanctions. the net effect is that iran has become a marginal player in the international oil industry, and if their current trajectory continues, it is on its way to being nearly eliminated as a player in that industry entirely. however the effective sanctions on iran's energy sector will make it harder for iran to return to its position in the industry if there is, if there is a nuclear deal and if the international community wants to send you sanctions. the energy sanctions are taking a severe toll on iran's economy. everyone is aware of the plummeting value of the trend

for. i can do little more closely. i try to look at their hard currency reserves and if i understand that those reserves have fallen to about $70 billion from a level of about $105 billion at the end of 2011. trita talked about the proverbial cup of corn and that ayatollah khomeini drink in 1988. i also have some reference to that. to accept that advice to end the war, to give up on the idea of war against -- because all of his advisers basically went to him at once and said, war into victory is not achievable. this is too high a cost to we need to cut our losses. i believe we're getting close to the point where a critical mass of ayatollah khamenei's advisers are going to come to him and tell him that the sanctions are extracting too high a cost and

that there needs to be a compromise on the nuclear issue. still, khomenei has shown itself to be highly inflexible and even more so i would say that ayatollah khomeini. to compare it to saddam, saddam hussein when faced with international sanctions of this magnitude, accepted the u.n. oil for food program allowed him to get back to pre-sanctions level of oil exports of about two and a half million euros of oil a day. although of course he did not control the revenue from those. khamenei is now down to 900,000 barrels per day in exports, and so one could even argue that khamenei is less flexible than saddam hussein was when faced with a similar situation. and i see no evidence whatsoever that the great supreme leader cares one whit about the economic situation of his people, not one whit more than saddam hussein did. its economic managers seem to be

doing their best, and they're trying hard to shield the poorest and least capable iranians from the effects of sanctions. but their strategies are likely to only go so far as the sanctions begin to shut iran's economic engine down. ultimately, a way out of this situation is for khamenei to care about is population and take the way out that he's been offered and has not accepted today. that said, having observed and studied his decision-making over many years, i'm skeptical that we will see a change of from this font of wisdom and brilliance and light that khamenei is coming anytime soon. now just a few points on hillary mann's presentation. i found it interesting that the comment that iran doesn't really

care if assad calls or they can manage if assad calls will come if that's too a way they fighting so hard to keep them in power? so think is a little bit of contradiction in that statement but i would also say they have sent revolutionary guard coots forces, the coots forces will not be decisive in keeping -- the coots force that are helping assad will not keep them in power. he is going to fall. it's just a matter of time. they are light infantry, tank it is not need light infantry but he needs heavy weapons are these heavy weapons are being degraded daily. what is heavy weapons are denuded, he is going to collapse it i think that's the given. i also would take issue the idea that somehow the region is shifting toward iran's position. that's very interesting to me because khamenei and his advisers calculate that the

regional governments would not cooperate with u.s. and international sanctions, and then but since then they've been absolutely shocked at the degree to which the region has cooperated with the united states and with international sanctions. the countries and the leaders they thought might stand with them have actually distanced themselves and abandoned iran and highly. and that's where the sanctions are working as well as they are. and i thought the idea that somehow the regional governments are going to shed a tear if there were a confrontation between the united states and iran over the nuclear, the united states did strike. of course, i'm not advocate -- very few people would advocate a strike, but if it did come to that, i really doubt that hard anybody in the region which every single tier over it. i do not think you are going to see mass demonstrations in the region, you know, arguing that

iran has been wrong, iran is the victim here, you know, any such strike would come after much due diligence, many more talks, and that many more opportunities for iran to take a compromise. and the idea that iran is somehow going to become hailed if there is a strike i think is quite, i think it really contradicts what even a cursory read of the statements from the persian gulf leaders would say. so in conclusion i suppose i'm not overly optimistic but it would say that the united states and its partners have offered iran a way out. i think these offers have been genuine, well thought out. i think they are not maximalist. they are not i think as trita says, trying to change the regime. the regime accepts the deal on the table i believe that there could be a deal that would lead as mrs. clinton has said to a quick easing of sanctions, and i

think the solution is for iran to find a way to accept the deal that is honorable. thank you. [applause] >> some good questions here, but let me ask if anyone wants to comment on this. because the title is american and arab policies and shortcomings. people emphasized the u.s. policy but does anyone want to comment on what the gcc countries think about american policy in the region in terms of its containment or of iran? for example, it seems to me that they are generally satisfied with defense cooperation and have accepted and cooperated on sanctions, but they have considerable concerns about war

and considerable concerns about the consequences of iraq and what our policy is in syria, and certainly palestine. so would anyone like to comment about that? >> can everybody hear me? so, i think part of iran's favor is isolating itself from the neighborhood in terms that particularly the gcc states. under ahmadinejad since 2005, the islamic republic has done a lot to scare everybody in the region, through its nuclear pursued, but a range of other action. when you look at iranian policy before ahmadinejad, there was a tendency to seek some sort of cordial working relationship with the gcc states, including saudi arabia, especially saudi arabia. for example, rafsanjani really trying to be some of the tensions between iran and saudi arabia, followed much more

policy toward saudi arabia and the gcc states. of course, the historic and ideological tension between the two sides never went away, but ahmadinejad has managed to exacerbate tensions with the gcc states, through his rhetoric but really through his actions as well. so would you look at iranian policy in the last several years, especially since 2005, there has been a lot of failures. iran finds itself in a situation it is in because it has managed to drive the gcc date meant into u.s. arms. >> can you hemi? yes -- hear me? the microphone is on. i think the critical issue, there's a tendency to put a lot of blame on iran's president ahmadinejad, but the critical

strategic game change it happened in the last 10 years that i think sent shockwaves through the gcc and has really changed the geopolitics and the jew of economics was the u.s. invasion of iraq. that a sense of the complete overhaul political order in iraq to become a shia led arab state. this is something that i think in particular our saudi friends have not even really begun to grapple with. it is something that is changed fundamental politics, fundamental economics. it means that iran is no longer dependent on dubai. it has a huge, huge trading partner in iraq. it means that only iraq but afghanistan. today, two years ago members of congress thought that they could have legislation that would cripple iran because they would cut off iran's gasoline imports. well, today i ran not only is not depend on gasoline imports, but exports that gasoline to afghanistan. so what iran is been able to do enemy but i think it's a

determination, issue of both strength but also a show of u.s. weakness. and the show that the united states doesn't really understand or even care about the basic balance of power politics that are necessary in the region, and which spurred tremendous concern among our gcc allies. >> well, -- >> can i comment -- >> yes. there are some good questions spent i will go very quickly. just very briefly. the last u.n. sanctions on iraq were not lifted until 2010. beyond that, comparing iraq and afghanistan to the situation with iran, qaeda misses the point because those are two states in which it was regime change. if you read come and try to knows the legislation by and welcome you see the requirements for lifting the sanctions from the congressional side goes well beyond just the nuclear issue. and the issue at hand is not whether technically this could be resolved or not. the issue at hand is what is the

confidence on the other side that when it is a promise to do so, that they have confidence that that promise can be executed in an effective manner. and i think that confidence and he doesn't exist and i think there's some reasons for the last time the administration thought the u.s. senate on sanctions, they lost 100 to zero. 100 to zero. that's not a particularly impressive record. when it comes to what was offered, i mean, i think when they made it clear as to the secretary of state plan, sanctions relief is not on the table in his last three runs of talks. they were not. just plainly stated by the u.s. negotiators. imagine if, and to expect that they will be immediately after the meeting with the principle of reciprocity was established, immediately in the next meeting to and expect it to be put on pause we will sidestep reciprocity i don't think is realistic because i think that was mainly because of election politics here in the u.s.

going forward perhaps there will be a little more flexibility on all sides. but imagine if the iranians had accepted the proposal, which was shut down for do, sure that all the% as well as the stockpile. but there was no sanctions relief offered at all. we would still have seen the european oil sanctions go forward. they would still have seen their negative effects on the iranian economy. and i would think that the iranian people would be asking themselves, after all of this grandstanding, why did iran give up so much and not get anything to get any positive impact on the economy? then they would ask themselves, so if they got nothing on the sanctions, what did khamenei get himself that caused them to accept the deal? put him in even more problematic position with his own population, because the population already quite -- has been a deal between the regime and united states that don't have saved the regime.

it would exasperate a lot of the problems that we already have. >> we do have good questions. how much time do we have? spent i just want to say, a great many sanctions -- [inaudible] was for terrorism, state sponsors terrorism. president has discretion to take a ran off that list, subject to a joint resolution in congress, blocking it although that can be vetoed. and i don't believe any such effort has ever been vetoed. so the president has discretion immediately to lift a great many sanctions with his own authority by taking iran off the terrorism list but i'm not saying iran is close to getting that -- >> not even anywhere close to getting that spent on just one at a tremendous discretion the administration has to balance and ease sanctions if he decides to.

>> thank you, everyone. we have about 15 minutes. i have four questions here that deal with the same subject, so i can't ignore it. the most simple formulation is this, with the u.s. have such an emphasis on iran's nuclear policy if it were not for israel? are israel's concerns really security? and i guess i should couple that with one that makes a reference to some israeli military and intelligence analysts who think that military strikes against iran are not a very good idea. so, when we're determined our our policy toward iran, how much are the israeli concerns driving us?

>> to some extent, but i don't think to say the primary shape for u.s. policy is just a concern regarding israel because the united states has very many different anxious in the region can has many partners in the region. there are various applications regarding iran's weaponization of its program, including proliferation, could do real damage to the npt, the worldwide nuclear proliferation regime. it could lead to great tension and anxiety in the persian gulf, strategically important region, and, frankly, yes, if iran develops nuclear weapons it would endanger israel's security. and i think the biggest danger there is not that the iranians would immediately launch their nuclear weapons at israel. there are two thoughtful and rational for that sort of behavior. but if you have two states with nuclear weapons with no

communication, there is a great chance that any sort of conflict between the two states, whether it's conventional or asymmetrical let's say between hezbollah and israel could escalate into an inadvertent nuclear exchange. and that is a very dangerous, not just for israelis security, not just for u.s. security, but for global security. so in reality, iran's pursuit of nuclear weapons capability is a global issue. and i think one of the u.s. acceptance has been to make sure that this is a global issue, that it's not just a matter of israelis being work. and answering a question regarding -- actually there's a diversity of viewpoints regarding the military option. we've seen that the last few months and years where various figures have come out and said that right now is not the time for military strike against iran because the consequences would

be quite possibly very negative. .. >> about the, there wouldn't be -- no one in the region would shed a tear if the united states attacked iran over its nonexistent weapons of mass destruction program. it's interesting to have these ideas on our own, but it's more interesting to look at polling which is one of the more objective pieces we can analyze. and if you look at the most recent arab opinion poll

anything the middle east, mostly among sunni-arab populations, something like 62% of them think iran is not just developing a nuclear energy program, but a nuclear weapons program. just about 62%, give or take. over 75% of them think that would be a good thing, think it would be good for iran to have a nuclear weapon. those are the people. what ken is talking about are the governments, the governments which we have learned the big lesson from the arab awakening is that the governments matter now, but they may not matter as much tomorrow or next year. we have to take public opinion seriously, and that is a very serious statistic. and one of the reasons why it's there is, again, not because people in the region are pro-iranian or pro-shia. no. it's because what they see iran doing is standing up to the united states and israel which gets to the other piece of this question, is what the united states is doing in terms of constraining iran's nuclear program there to benefit israel?

if you look back at the history, iran started its nuclear program because the united states gave it to iran. gave it to iran under the shah before the islamic republic. and when the united states gave iran its nuclear program, the tehran research reactor which is so often in the news, that research reactor could only process highly-enriched uranium, only. the islamic republic after the revolution had to pay to get that reactor reconfigured to take only low-enriched uranium. so the intent for the united states before it disagreed with iran's policy of defiance or independence, however you would characterize it, the united states was not only just fine with iran having a nuclear weapon, but probably fine with iran having a nuclear weapon since it provided all of these inputs, but helped it, helped to go along in that direction. now, is that just because the united states wanted to have its policemen? yes. but is it also because if the

israelis feel constrained by an iranian nuclear program, that's a problem for the united states itself. it's not just that we want to protect what the israelis are doing, social it's that it helpe united states to dominate the region, and this is the crux of the problem. the united states has fought now for years to try to dominate the region. now, i have nothing against what's called hegemony or dominance if it can work. i'm all for my children having a great economy here, having their college paid for if it can work. the problem that we have found in the middle east, likely found in asia vis-a-vis china is it doesn't work. so if it doesn't work, our pursuit of this kind of dominance hurts us as we futilely try to pull it off. so, yes, israel is pushing on this, but they're pushing on an open door. go back to the 2006 war in lebanon. the united states was full square behind it.

now, could israel with u.s. support have pulled off the 2006 war in lebanon if iran had a breakout capability? probably, but they would think twice, and that's crux of problem. -- that's the crux of the problem. [applause] >> well, let's go back to diplomacy. there's a question for ken, and can it is exactly what -- and it is exactly what is the deal on offer, our deal. is enrichment at any level on iranian soil an absolute nonstarter for the u.s.? is it something that we will not accept? >> the current -- >> and -- well, let me ask a follow-up for hillary. what do you suggest as concrete steps that we can take to resolve these problems with iran? diplomatically? >> do you want me to go first? >> yes.

>> um, what has been discussed in the three rounds concerns 20% enriched uranium as a confidence-building measure. there might -- what has been discussed in the rounds that took place over the spring and summer were, basically, an interim agreement where iran would suspend and ship out existing stockpiles of 20% enriched uranium. the united states fell back from an earlier position of -- and this is in the u.n. resolutions, but the u.s. and its partners drew back from it -- of demanding that all enrichment be ceased. now, the u.s. hasn't necessarily dropped that as an ultimate goal, but in terms of an interim agreement what was discussed was 20% enriched uranium. >> it's a very important

question because a lot of times, you know, we argue back and forth, but what are the concrete steps that can be taken. there are a few. the first is one of the rumors about when or if talks are commenced after obama presumably is reelected, what would be the, what would be on the agenda? the united states is pushing to have that agenda be focused only on the nuclear issue, only on the nuclear issue. that's a mistake. because as ken rightly pointed out, iran is listed here as a state sponsor of terrorism, there are all sorts of human rights and other concerns. whatever iran would give up on the nuclear issue, yes, there may be a deal if we can accept iran's right to enrich uranium on its own territory, but that deal is going to be fragile if we continue to press iran on all of these other issues, and there's no accommodation, there's no strategic agreement, no strategic understanding on the range of issues. so the agenda must be broad. the agenda must address the range of issues that bedeviled

the u.s./iranian relationship. with that this has to be -- with that there has to be a demonstration of u.s. seriousnd. now, we often fall back on our grievances, the concerns real and imagined that we have with the islamic republic, and some of them are very real. i'm not minimizing that. but we fall back on that as an excuse not to deal with this country strategically as we dealt with china when we needed to because it was in our interests. here the issue with iran is that it's in our interests to have a better relationship with this powerful country. it's in our interests. what they did to us in the past should be in the past. we need to deal with them in terms of our interests. in that regard we should take a lesson from what president nixon and kissinger did with china, and that is demonstrate in two concrete ways, one, this is what nixon and kissinger did with china, they stepped down from the intelligence operations we had with china. they told the cia to stop what they were doing in tibet to undermine the people's republic

of china, stop it. so that's number one. we have spent nearly half a billion dollars in money, in intelligence operations to undermine the islamic republic. we need to stop that as we did with china. the second thing we did with china is we put a moratorium on the constant, persistent patrols of the seventh fleet right off china's shore. we can do something also to demonstrate that the fifth fleet is there to protect american interests, not to harass and undermine iranian interests. those are two concrete things we can do in conjunction with having a serious, broad agenda for strategic realignment with the united states and the islamic republic of iran. that's the formula that worked with china, and that should be at least tried with the islamic republic of iran. [applause] >> if we widen the negotiations to cover more topics, how do we

deal with the diminishing prospects for a two-state israeli/palestinian solution, and how do we construct something that does not lead gcc states to think that their interests in the gulf are being sacrificed? >> so i think if we reach a deal with iran, it does not mean that the gcc states should feel that the united states is turning their back on them because i don't think the united states necessarily is looking for a final deal with the islamic republic in which we solve all our differences with the regime in the tehran. and it shouldn't look for that. i agree that, yes, we should have a strategic relationship with iran, that iran is a country we should work with. but we have to make a distinction between iran as a country and the islamic republic as a political system which is not democratically-elected, which has one of the worst human

rights abuses in the world, which supports terrorism, which is pursuing a nuclear weapons program contrary to international norms and laws. so when the u.s. is negotiating with iran, i think we should keep that in mind. and i don't think the united states officially wants to implode the iranian government or have the iranian government collapse or have the iranian government capitulate. i think our goals are pretty well defined. we want iran to stop enriching uranium to a higher degree that can be used for a nuclear weapon, period. and i think that's very achievable. part of the problem is iran's supreme leader, ayatollah khamenei, like ken said, is inflexible. he's even more inflexible than khomeini was, and there are indications that his advisers including within the revolutionary guards are not happy with him. he's been criticized even publicly for his decisions and

style of rule. and when we look at the islamic republic, this is not a system that's different than the other authoritarian regimes that have been overthrown in the middle east. it is corrupt, it denies its people basic rights, social, political and economic, it discriminates against half of the population, women, and it's actually making life much more difficult for them. these are things that matter. these are things that create dissatisfaction among iranians with the regime. so when the islamic republic talks about the arab spring as benefiting it, this is delusional. i mean, this might be the read of the situation, but this is not a correct read. khamenei is not a worldly person, he's relying on his very close advisers who also have a very incorrect view of the world. so going forward, negotiations should be about defusing this crisis that, frankly, the

islamic republic has put its people in. >> can i say -- >> [inaudible] >> i think that after the arab spring it's one thing to say that all of the relationships with governments in the region in which you don't have the type of political order and freedom and openness that is desired by the populations, it's one thing to say that all of them cannot change right away, and there's going to be some relationships that are going to still limp for a while before they get changed. but i think in the aftermath of the arab spring to start new relationships based on just purely security considerations with no considerations of other factors, the same factors that have brought us the situation in egypt and elsewhere, i think it would be a mistake. but perhaps more importantly, mistake or no mistake, i don't see any desire on the u.s. side or on the iranian side for having a partnership between the two sides.

at best i think they're looking for some sort of a codified rivalry in which they can compete without ending up in a war. the iranians don't view the u.s.' presence in the region as legitimate and, ultimately, they believe there is an expiration date for the u.s. to stay in the region. as a result, they don't want to invest in that basket. they want to put their eggs there. and the u.s. for its own good reasons views that the islamic republic has an expiration date and doesn't want that same type of investment. what is achievable, however, is to take several significant steps back from the brink of the abyss of a military confrontation. that is highly achievable, frankly, that is also something that i think there's a desire on both sides to achieve. i think it is an exaggerated fear amongst other nations in the region and perhaps even a little bit outside of the region that have this fear thinking that this would be some sort of a return to the u.s. relationship with the shah in which iran would gain that type of a strategic significance at

the expense of other current strategic allies of the united states. i don't see any chance of that happening in the short or even in the medium term, and i don't see any chance of that happens unless there's some significant changes in iran. and again, i don't see a desire on the u.s. or on the iranian side for that type of relationship. there is a desire for a different type of competition, a different type of rivalry but not for that type of a partnership. >> well -- >> can i, please, if i can just, i -- >> one last comment. >> -- have two important points to make. one is that what the united states desires or what is necessary is different. it is necessary for the united states to have a strategic realignment with the islamic republic of iran like it was necessary to do so with china. and how it affects our allies in the middle east is critically important to look at the parallels. if you look at the parallels with china and you take japan and taiwan, for example, japan's economic and political

development experienced its most successful, its most -- its biggest success after the united states went to china after nixon and kissinger went to beijing. japan benefited enormously, as saudi arabia and our other gulf allies would benefit from a more productive, less tense environment in the region. then you take israel even to compare it to taiwan, that issue was bracketed between the two countries, between china and the united states. it was bracketed. you could similarly have something between the united states and iran over the us rail and palestinian issue. but i must come back to this other issue. this is in our strategic interest to come to terms with iran just like china. when mao was in charge, when nixon went to see mao, he had just presided over the killing of over three million chinese. they didn't just have a nuclear weapons program, they had tested nuclear weapons. the interest here is what is in

the u.s. national interest. even there this is another critical challenge for the united states. as middle eastern populations become more empowered and have more of a say in each of their countries, they are not going to vote for, they are not going to support a secular, democratic u.s. model for their governance. they're not going to do it. they're not going to accept or lobby for a complete copy of the islamic republic of iran, but they are going to try to fight just as hard as the iranians are today to have a governing system that is theirs, that they can evolve and change over time, that integrates both islamic principles and republican politics. republican politics does not just mean our ideal or our myth or one man, one vote. that means a system where people have competitive politics, there's real participation, and there's a real say. it's not perfect in the islamic republic of iran, but it's theirs, and it's up to them to evolve it. that's the challenge for the united states. not just in iran, it's going to be our challenge in egypt and all over the middle east.

we need to come to terms with it. [applause] >> well, we have not exhausted the topic, but we have exhausted our time, and there's another panel that needs to set up, so thank you to each of you. i think it was excellent. [applause] >> coming up later today here on c-span2, we'll bring you a discussion on public assistance programs and the so-called safety net. it'll be live from the new america foundation beginning at 12:125 eastern. the road to the white house continues in the wake of hurricane sandy. president obama is off the campaign trail today, but he will squeeze in some last minute campaigning starting tomorrow. he's got stops scheduled in green bay, wisconsin, las vegas, nevada, and boulder, colorado. these will be the first events since orchestrating hurricane

sandy efforts. this afternoon he will travel to survey damage, governor chris christie will join him. vice president joe biden will be in ocala, florida, later beginning at 3 p.m. eastern on our companion network, c-span. a little bit later, it's the republicans' turn. a pair of ohio politicians will rally for mitt romney, rob portman and john kasich. you can see the event live at 5:30 eastern also on c-span. and a little bit later it's the nominee himself, mitt romney will speak in jacksonville, florida, joined by former golf jeb bush at the event. also on c-span live at 8 eastern. >> you know, indiana's made incredible progress in the last eight years. we've honestly balanced budgets during all those years, we've become the fiscal envy of the country, and now we have the largest budget surplus that we've ever had in our history. it's going to make it possible for us to strengthen our budget reserves, and i believe we can

cut taxes for every hoosier. but, john, you just said that we pay for things in indiana, okay? but when you were speaker of the house, for five of the six years that you were running the statehouse, indiana ran deficits. when mitch daniels came into power just a couple years later on budgets you helped to write, indiana was $700 million in debt and had a deficit of $820 million. you know, john, facts are stubborn things, and i'd just like to know from my colleagues on stage how are we going to make sure and preserve the fiscal integrity of the state of indiana? >> congressman, if you'd have spent the last 12 years in indiana rather than in congress, you'd know that our budget has to be balanced. indiana, according to our constitution. i've balanced and produced bipartisan balanced budgets, and oldly, these -- oddly, these you talk about, they were supported by david long and our lieutenant governor, becky skillman. i find it laughable that a united states congressman would

lecture anybody about fiscal responsibility. you voted not once, not twice, but five times, congressman, you voted to -- and the results increased our deficit by $200 billion, billion with a b, dollars. >> find key house, senate and governor's races from across the country on c-span, cell c-span o and c-span.org/campaign2012. >> george washington university's law school center for law, economics and finance held a conference recently on the implementation status of the 2010 financial regulatory law often referred to as the dodd-frank act. this next panel examined when the next financial crisis could hit and what could cause it. featured speakers include simon johnson, former chief economist with the imf, and karen petrou. this is just over an hour: >> thank you very much.

i certainly hope and expect that this discussion will be as stimulating and exciting as the last panel. each of the panelists will speak for about ten minutes, and then we'll have an opportunity for colloquy among the panelists and then open for questions to the audience. we'll go in the following order, scheherazade will start us off, then anna will be second, simon third and karen fourth. so, scheherazade, please, kick us off. >> thank you. thank you, art. it's a pleasure to be here at she leaf's annual event. i will try not to put you too much into a gloomy mood. [laughter] if you're going to discuss the business of trying to predict what possibly is the next financial crisis, i think it's important to discuss the changing nature of these crises. thirty years ago we had what we now affectionately call the traditional type of crisis, only happened in emerging markets,

and the contagion of this crisis was regional. so if brazil got hit, yes, latin america got hit, but your financial eggs in southeast asia were relatively safe. but in late 1995 -- sorry, 1994, early 1995, the world as we knew it changed. mexico crashed, and something very strange happened. within three days markets in hong kong, india, hungary, poland crashed. we weren't expecting this, and we most certainly did not understand what mechanism was in place that was causing world emerging markets to crash just because mexico crashed. and, you know, when economists can't understand something, we give it a special name. we call it an anomaly. [laughter] when asia crashed a few years later in '97, we truly understood that something was different because it dragged down every emerging market in the world, and hence since this

nasty animal, this contagion in the system, what we call fear now, if one emerging market gets hit, money was being pulled out of every single emerging market blindly regardless of the reasons of the initial crash. and at this juncture most developed countries and rich countries and markets were relatively safe from this contagion. this was short lived. as you all well know, late 2007 we crashed, and we infected the entire world. this was a domestic crash beginning in the housing market that spread into the derivatives market and then so on. but because of financial trade and remittance mechanisms, the entire world was impacted by this. but this crash brought to light this other transmitter mechanism that no one wants to really talk about. it's difficult to control, and rational policy measures don't seem to work on it in the short term. this transmission americanism is about confidence -- mechanism is about confidence, or in other words, of fear.

and this is prevalent in the market. we see it. the development of global contamination of confidence is partially responsible for why a tiny little country like greece can slow down chinese growth and stall a u.s. recovery. so predicting the next potential crisis really is not that difficult. we know the most imminent danger is coming from the eurozone. but i tell you what, what is very difficult is what happens after the eurozone. the prediction of that next crisis is very difficult. it most certainly won't look anything like this. we've seen this in previous crisis, legislation or no legislation it will probably blindside us from an arena that we're not expecting. let me just talk about europe for a minute. it really is no longer about greece. greece is pretty much irrelevant today. the germans have calculated the cost of a greek exit. it's more than if the greeks stay in, roughly four basis

points of german gnp if they stay in, so we're keeping them in. really it's all about italy today. that's what the game is. we only hear about spain in the markets right now and in the news because there is an impending need of a bailout or in modern language we now call it a line of credit with conditions attached, okay? [laughter] spain is save bl, we know it. we worry about spain because of what happens to spain may happen to italy. for example, if you look at the three-year bonds of italy and spain, they literally work in tandem. so we're a little bit afraid that if we let spain go, this might spill over to italian shores. if the markets seriously lose faith in italy, then i think we have some dark days ahead of us. but let me talk about right now because something has shifted, and then i'll talk about eight months from now. until very recently the eurozone crisis has been pretty dramatic in its impact on markets

everywhere. there's been a very heavy, black cloud of risk hanging over wall street for almost two years and a very big shadow, dark shadow, over global markets. there is a sense right now, and it's just very, very recent, that some of this dramatic black cloud is receding x this is for a number of -- and this is for a number of reasons. partly because the european central bank has managed to calm the nerves of the market, and perhaps we are thinking that this time it truly is different, that there's a profound shift in europe and especially in germany. and the odds are that we might have some assemblance of calm coming down the road. what we have seen is that the europeans -- and here i'm really talking about the germans -- have finally understood that while austerity measures are critical in the short run, um, doing too much of them without balancing this out will yield no growth in the short run, and then that's the beginning of the end. and so they have to ease off a little bit on that.

and more importantly what they're actually understanding is actual crisis management, and it's happening. mario draggy, the european central governor, is delivering with his commitments of unlimited italian and spanish bond buying, his version of qe, but it's working. it's calming the markets. secondly, the europeans are embarking full steam ahead and committed to a single banking supervisory body which means about 6,000 banks in the eurozone are going to come under the european central bank in some format by 2014 starting with the banks that are receiving state aid and then larger, cross-border institutions. most of the day-to-day oversight will be managed on a national level. but what you are or seeing is effectively a banking union being created. i'll tell you what's even more important is what the underlying premise of this banking union is. it opens the way for the eurozone bailout to inject capital directly into troubled

banks, bipassing the host government debts. and that's one of the critical factors here. it allows the european central bank to actually behave like a real central bank because it probably will have direct access to this bailout. and what this means is it breaks the vicious cycle between sovereigns and banks. and that is really what the market was looking for. this is what, why this plan is so important to the markets. i would still say one caveat here, we still have a long road to go because, for example, the germans, they want more control over national budgets by the european commission, but at the same time the banking supervisor authority, they want a little bit less control on that because they have some politically sensitive savings banks that they want to sort of keep out of the system a bit. i can promise you something, the germans will not agree to any plan that would mean rich countries are underwriting banks of poor countries. that's off the table in more ways than one. so as i mentioned before, you know, we're seeing a sense that the drama of the eurozone is

receding a little bit, and so the real question today is has it receded temporarily, or is it permanently gone? i don't think we can answer that question honestly until eight months from now, and that is when the italians go to election. that, i think, will be the marker. so if we look down the road, i really do think that the biggest risk for the drama to come back is what happens with italy. we really don't want a liquidity rob in italy to -- problem in italy to turn into an insolvency problem. that would be the beginning of the end. losing mario mario monti or havg some convoluted scheme when the elections happen and mario monti would be called back in to make the government, that was a fantastic outcome. but i'm a little bit afraid if we rest the recovery of the rest of the world just on that, we

are on shaky ground a little bit here. so while fears are calming in europe today, i still think there is risk in the system, and that will play itself out. there are a couple other things i'll mention very briefly. central eastern europe. many of the banks, hungary, poland, romania, bulgaria are incredibly exposed to european banks because they get 90% of their credit from european banks, and the banks are obviously under enormous pressure especially given that any version of basel iii and any regulatory headwinds coming into europe is going to put more pressure on the banking system. so i'm very happy for from breather from the -- for this breather from the european drama, and i think may is the marker about whether this is permanently bedded down or not. so not to end this on a gloomy note, i'm cautiously optimistic. [laughter] [applause]

>> i think anna's going to take us back to title vii and derivatives and perhaps give it a little bit of an international perspective on where we are and where the problems might still lurk in that area. >> so first off, thank you very much for inviting me to participate. i'm very pleased to be here. and to have the opportunity to listen to so many interesting view points. um, i'm one of the horrible, horrible lawyers, um, that work with wall street banks and other international banks, um, so that's my little disclaimer at the start. and i come to this, though, with a fairly open mind in terms of assessing the challenges that lay ahead as far as dodd-frank implementation and implementation of the regulatory reforms related to derivatives

globally. um, to begin perhaps with a couple of themes that scheherazade pointed us to, it's very difficult in a field like derivatives to ignore the interconnectedness of things and the interconnectedness of markets. perhaps more so than with other asset classes in a typical derivatives transaction, you're usually dealing with multiple jurisdictions. you're dealing with one or more counterparties who themselves are organized in a particular, in a particular jurisdiction. however, they may act through other entities and may book their derivatives through a central booking facility which may be located in yet another jurisdiction. and those transactions may be

guaranteed by other parties whether affiliates or parents that are domiciled in yet another jurisdiction. so it was, i think, pretty broadly acknowledged that derivatives played some role, though i would hardly say that they were a root cause of the financial crisis. but if one acknowledges that they played some role, it's clear that some changes were needed in terms of the regulation of the derivatives market, and i think that there was broad spread consensus among the g20 regarding the overall objectives or aims for derivatives regulation and derivatives reform. so first and foremost that we had to increase or take actions that were designed to promote furthertranarency of what was widely perceived as being a somewhat opaque market, that we needed to insure that the, that

there was integrity to the derivatives market and that this was done by providing for reporting, by providing for enhanced recordkeeping, by providing for enhanced supervision of the various parties in the market. and finally, that we had to endeavor to reduce systemic risk. so if those are your starting, your starting principles, your baseline, um, from that it's difficult then to test and to assess where we are. and how title vii and how our counterparts in europe with misid and amir, really the two crucial pieces of reform that address derivatives in the european markets how, um, we've

fared and how far we've come. one of the principal concerns that clients have is that instead of creating a system, a regulatory system that has clarifyity and that -- clarity and that provides for legal certainty, the implementation and the rulemaking related to title vii has provided anything but the level of confidence that market participants need. um, one of the earlier speakers made reference to the cftc having acted very expeditiously and perhaps having taken the lead in being farther ahead than other agencies in the united states in terms of their rulemaking, and that's certainly true. the cftc has been very active in rulemaking related to title vii and in its implementation efforts related to title vii.

the sec has lagged behind a little bit, and it's always important to remember that in the united states we've continued even with dodd-frank to preserve this duality of having derivatives be regulated jointly by the cftc and the sec which itself creates the possibility for legal uncertainty and ambiguity in certain cases which we've already seen with the proposed and even with the final rules. the cftc took a very particular tack in implementing title vii, and that is that over the last two years we've been barraged with proposed rulemaking after proposed rulemaking without there being, essentially, a comprehensive plan or a comprehensive look at what the new regulatory structure would be, what the new rules of the road would be. so market participants, in

effect, have had to comment individually on various pieces of this puzzle without seeing the whole puzzle. and as we've started to see final rules -- and we now have many, many final rules relating to title vii implementation -- we realize as practitioners and our clients are constantly pointing out that there are numerous issues where the rules that have been finalized don't actually work together and where there are significant gaps created created and where there's significant ambiguity. likewise, we are facing deadlines. for example, october 12th was a very significant deadline for most in the derivatives business. however, shortly before that deadline -- literally at the 11th hour on october 11th -- regulators decided that, wisely, that market participants weren't ready and there was a lack of

clarity that would permit the markets to function effectively, and the cftc had to step in with no-action letters, frequently asked questions, interpretive guidance and so on. to do that on october 11th and throughout the day on october 12th and well into the evening on october 12th. obviously, that poses some real issues for market participants who are trying to structure their businesses in compliance with dodd-frank. perhaps the most serious issue and the area of greatest risk is to go back to my first theme on interrelatedness and interconnectedness. our scheme for regulating derivatives differs in some significant respects from the scheme that's being adopted in europe. while there are certainly points of commonality, for example, clearing and the clearing requirement, the requirement that most derivatives transactions be cleared through

a central counterparty, that's certainly common. certainly common notions about margins although margin, which is obviously incredibly important to avoiding and containing risk, has yet to be, those rules have yet to be finalized domestically or internationally. general consensus on uncleared swaps, there's a complete lack of parallelism in many of the most crucial rules. so our definition of instruments that come under title vii regulation -- swaps and securities-based swaps -- differ in sometimes significant ways from those instruments that are covered under the european regime. in the united states, our title vii requires that major swap participants and a variety, a host of other new players,

dcos, etc., submit to a registration and oversight process, and that's a coordinated and national process. what we're looking at across the atlantic is that in large measure new market participants don't have any new registration obligation and entities like central clearing facilities are going to be regulated by national regulators so there won't even be a consensus or a coherent approach nationally. moreover, the extraterritoriality of our title vii has been, has made the united states a bit of a pariah in the sense that we've abandoned all notions, historic notions of national -- of deferring to and respecting foreign authority and have instead decided to impose title

vii very broadly to foreign banks and to entities that have relatively little nexus to the united states. likewise, there's some extraterritorial scope to amir and misid. none of this has been rationalized. basically, what i'm telling you is that there's no harmonization whatsoever at this point between the u.s. regulatory architecture for derivatives and the regulatory architecture in europe. we even have different timing. so if we're to believe that the current entities will start falling into place and we'll start clearing at least the first series of swaps in about, sometime in about march. it's not at all clear when the framework that requires clearing in europe will take effect. so as i follow this warrant

sufficiently concerning even if you look outside of title vii to volcker and to certain elements of the capital rules that apply to u.s. banks, it's not even clear that the, that dodd-frank lives up to its own mission. in some respects dodd-frank certainly encourages central clearing. however, it also penalizes banks from using central clearing through limitations on their exposures to certain counterparties without excluding central -- ccps from those limitations. that's only one of quite a number of important little idiosyncrasies within the law and within regulation as it's been implemented. so maybe to finish off, all this emphasis on transparency, on

risk mitigation in the derivatives area has boiled down to the conclusion that many of these dangers, many of these scary things are going to be fixed by central clearing and that central clearing is somehow a panacea because instead of having individual participants in the derivatives market face one another and conduct their own credit evaluations and rely on their course of dealing over years, rely on netting which has proved effective for decades, instead they should rely on a central entity, a central clearing entity which needn't necessarily be a bank. so, again, it makes you sort of scratch your head if you wanted to make sure that you were moving important financial transactions away from the shadow banking system, it's odd that you would concentrate derivatives risk with central

clearing entities that needn't necessarily be banks. finally, no architecture or structure for resolving an entity. so another theme that scheherazade talked about a little bit was confidence. so any financial entity -- a bank, an exchange -- relies and depends greatly on confidence. not unheard of that central clearing facilities have defaulted, have faced defaults in the past, have faced the failure as members. a lot of that fear people try and dispel and say that, um, there's portability, and you can easily move transactions to a different, a different entity, a different central clearing entity. well, the technology of that is not really well understood at

all, and it's hard to have confidence in that. but moreover, it's not clear that without some kind of government sponsorship or government backing or access to liquidity a central clearing facility will have the confidence to avoid, essentially, what would be a run. and while dodd-frank actually provides for some support to central clearing entities -- which, by the way, seems to go mostly unnoticed by critics who say, you know, we've eliminated government support, we've eliminated taxpayer support, we've eliminated the possibility of too big to fail -- we do have a provision that permits intervention to help in a modest way financial, financial utilities like central clearing facilities. however, that's not universe -- universal. there's no provision made in europe to support either

directly or indirectly any central clearing facility. so in my mind we've created a series of risks within the derivatives area that were nonexistent before we began this enterprise. one, simply the regulatory confusion, the ambiguity, the lack of legal certainty; two, the misalignment of and the lack of harmonization between our regulations here in the united states and those in europe for a market that is recognized as being highly interdependent and international in scope. we've created a host of technology issues, and it seems a bit like hubris when we're seeing and faced with market glitches in our capital markets not to expect and not to anticipate that when we move so much to centrally-cleared facilities to dcos without clear rules that we shouldn't

anticipate some technology issues. and finally, that we've consolidated risk or will be soon consolidating risk in the these new entities that without necessarily having a support mechanism to pit gate the possibility -- mitigate the possibility of a run and without having x without having real clarity or discussion about the merits of a resolution framework or a winddown mechanism for central clearing when we've essentially placed all our eggs in the one basket. [applause] >> simon? welcome back, by the way. >> thank you. so i'm simon johnson, and thanks very much for inviting me, and thanks for organizing another great conference. what could cause the next financial crisis?

i have three things to say. first of all, i don't know. [laughter] and you don't know, and nobody knows. i've worked on financial crises for 25 years, i was in 2007 through august 2008 the chief economist of the international monetary fund just down the street, i attended a lot of very interesting meetings during that time period with top officials and top private sector people, people who know as much as can be known about the world's economy and the world's financial system, and they collectively and individually had no idea what was happening and what was going to happen in september 2008. the second thing i would say is look around the world. the european situation, you heard a very nice summary just now, i'm much less sanguine about the political risks and the economic risks.

i think ultimately italy will have to restructure its sovereign debt, that's two trillion euros' outstanding debt, and the consequence of that are effectively unknowable. but i wouldn't worry just about europe, i would worry about japan. i wrote an article with peter boone that appeared in "the atlantic" at the end of september saying that japan may well be the next financial crisis, and we've talked about japanese demographics, and we talked about japanese fiscal policy, and we talked about the way that could impact both the japanese economy and the world economy, and i have to say that when we wrote that article, it was met with a universal, global stony silence. i don't know if you followed what happened in the japanese bond market this week, the selloff, the pressure that's now on the financial institutions. i'm not sure if you've kept track of the imf's recent and rather extraordinary warnings about the interest rate risk

held by large japanese financial institutions. but if you're not aware of it, please, do read the front page of "the financial times" today. but i wouldn't just worry about europe and japan. i would worry about china. i would worry about the financial risks in the chinese economy, i'd worry about exactly the forms of unforeseen contagion that we have experienced again and again since the mid 1990s. and that brings me to my main point which is what i don't know where the shocks will come from, where the problems will emerge around the world. i do know one thing, we are not ready. our financial system is not ready. we have not gone far enough with

financial reform. i endorse and support everything that dennis kelleher has said on the previous panel. in that regard. and let me put it to you like this: jpmorgan chase is the largest bank in the united states. it has a balance sheet of about $2.2 trillion on the u.s. gap. and when you see a lot of the comparisons of bank size around the world, people say, well, jpmorgan chase, largest bank in the united states, is between number six and number ten globally in terms of assets. all of those comparisons are wrong. they compare u.s. banks under u.s. gap with international banks, for example, european banks whose balance sheets are measured under ifrs. now, there is a fundamentally different treatment of derivatives under these two accounting standards. you might like u.s. gap, you might like ifrs.

we can have that discussion from an investor standpoint. from a regulatory risk standpoint, i like and a lot of my former colleagues in official circles like ifrs. it's a less generous form of netting, but it has a better indication of the downside losses you may be facing as a taxpayer. if you convert jpmorgan chase's balance sheet to ifrs, it's not $2.2 trillion. it's $3.9 trillion by our estimations. and it is by far the largest bank in the world. sorry, it's much larger than the european banks, the only other bank that's close to it in terms of total size is bank of america. now, this is a $16 trillion economy, roughly speaking, jpmorgan chase, let's call it a $4 trillion balance sheet. let me ask you a very straightforward question.

if jpmorgan chase were to fail or to be on the brink of failure today, a friday, would they be allowed to collapse like lehman brothers over the weekend? this is a hypothetical, just to be clear. [laughter] i don't want to be the cause of the next crisis. [laughter] could jpmorgan fail, be allowed to collapse? like lehman? anybody want to raise their hand, could they fail? i see no hands. could jpmorgan be taken over and managed through liquidation in an orderly fashion without causing disruption around the world using title ii, the orderly liquidation authority of dodd-frank? could that happen? could orderly liquidation impose

losses on some creditors to jpmorgan chase in -- that's the essence of liquidation -- without massively affecting financial markets not just in in the united states, but around the world? and let me make this question a little bit easier for you by telling you that there is no cross-border resolution authority. it's not legislated in dodd-frank, you can't legislate that. it's cross-border. it's not agreed among the g20 or the g7. the imf has been telling the europeans for 15 -- sorry, 20 years they need a cross-border resolution authority within europe, within the eurozone, and they don't have one. because governments won't agree to it. and by the way, if you did have a cross-border agreement on how to handle resolution assets and liabilities with the french, do you really think they would follow it in a crisis?

[laughter] cross-border resolution of global megabanks is a physical, legal, economic and political impossibility. you will not see it in your professional lifetimes, and i doubt that your children will see it. i stand with tom hoenig, formerly the kansas fed and now the fdic, with sheila bair, former head of the fdic -- you must read her book, "bull by the horns," -- and with richard fisher and harvey rosenblum of the dallas fed. fisher says our largest banks cannot be managed, see barclays involvement in libor for a

different illustration. they cannot be managed by their shareholders -- we can talk about hsbc and standard chartered, money laundry -- they cannot be managed or understood by their creditors. we have any number of failures across the european big banks to look at for that. and they cannot be managed by their regulators, by their supervisors. the largest banks in the world and in the united states should be made smaller, small enough and simple enough to fail. no funding advantage. these -- this is not a market. there is nothing about a market in the structure. it is a vast, nontransparent, dangerous government subsidy scheme. you, the american taxpayer, directly or indirectly particularly through the federal reserve stand behind the balance sheet and the risks of jpmorgan chase whether you like it or

not. this encourages them to get bigger. this encourages them to take more risk. they get the upside. the downside is someone else's problem. in a world with these uncertainties, in a world with these macroeconomic risks, in a world with so little capital in financial institutions including in leading american-based global megabanks, in this world where the shocks will come at you unforeseen from all kinds of places you could not have imagined, you must build a resilient financial system. that is what the economy needs, that is what the nonfinancial sector needs. you can listen to the lobbyists, you can listen to the special

interests, and they will complain about their profits, and they will complain about the efficiency of the american economy, and they will threaten -- perhaps gently -- consequences for american economic growth. all of that is an illusion, all of that is a distraction. the real danger to the american economy in this context is that our largest banks will become bigger, they will take on a great deal of risk, and they will blow themselves up. and the costs of that whether or not you save them or rescue them or use different terminology, the costs of that -- well, the costs last time were estimated by dennis kelleher and his colleagues at better markets at at least $12.8 trillion, almost a year's worth of gdp.

next time could be worse. next time the losses could be much greater. next time the damage to all of us, to all american citizens, to our place in the world could be much greater. thank you very much. [applause] >> karen, do you have any good news to give us? [laughter] >> well, i guess i'll start by saying my dog's so comfortable, i'm going to stay here. [laughter] he's heard some of what i'm going to say before. [laughter] and i think he sides more with simon. [laughter] actually, i do too in a number of ways that probably will surprise him and dennis and others. and the first thing on which i agree with you, simon, is that i also do not know what the next systemic crisis will be, and i am as frightened as you of it.

so when i think about what the next systemic crisis might be, i think the best place to start is to think about what's caused the last ones. and i'm not going to fight over whether we've had panics in 1907 or 1933. we heard that from the first panel. i'll just go back over the last 20 years for the systemic crises, um, we've had most recently. the first one in 1994, scheherazade, you mentioned mexico. and that was a solvency crisis because we feared that a country would go bust, ie its credit was no good, and that would ripple with dangerous effect through the banking system. that got handled aside from now how, and we puttered on until 1998 when russia and indonesia posed solvency risk in the financial system, and we managed that and puttered along, this time not so long because we hit 1999, and a hedge fund called long-term capital management

blew posing what anna described, complexity risk, raising the prospect of a shadow institution unregulated by the banking agencies would have caused so much damage to the banking sector or that the federal reserve, in my opinion very inappropriately, rushed in a package of assistance from the banking sector to support this hedge fund. that was '99. complexity risk, maybe a liquidity risk scenario. we puttered some more, this time just two years to 2001. and we had one of the most frightening cases of systemic risk when the world trade towers came down. at that point because of where the terrorists struck -- not accidentally, they meant to hit the heart of the financial system along with taking out thousands of innocent lives -- we came very close to a shutdown of the global payment system. not a small issue, because all

of it was pretty much buried under the towers, and it blew. the fed rushed in with $87 billion at that point, more than it had ever put into the financial markets ever before, basically took over the payment system, held the system, the world together with glue because no one expected this, and we came out the other side. that's operational risk. we don't think about that much in financial markets. solvency risks, the credit crises started back with the so-called less developed country one, complexity risk was starting to be thought about in 1999, operationalist. these types of systems, their complexity and the dependence of the world financial markets on their plumbing, this infrastructure, that's operational risk. that's an important force -- form of systemic risk. after 2001 puttered again, and then we hit 2007-2008.

and i think i'll call this crisis what maybe, simon, you would agree the evil banker hypothesis. [laughter] in which -- and it was not just bankers, shadow bankers, rating agencies, regulators asleep at the switch, sins of mission and commission -- of omission and commission, and we came very close to the brink of another great financial crisis. fine. then 2009 we had the euro, european crisis. it was, of course, going on before, but because of the weaknesses exposed in the 2008 debacle, all of the papering over that european regulators had been doing for decades -- simon rightly alludes to that -- was nakedly revealed, and we had the e.u. crisis. now, 2011 another operational risk crisis, the japanese tsunami and earthquake. these things happen a lot, that is my lesson. and it's not just the evil banker high hypothesis that accs

for it. they are very powerful, to be sure, but they still live in a world of dangers beyond their control and, indeed, beyond the regulatory control. so what should be done about all of these causes of systemic risk in this complex and dangerous world? i think we need a balanced regulatory structure. not a few simple fixes which largely rely on capital. capital is very important, but it doesn't cure operational risk. you can have buckets of capital, but when the lights go out, you can't find it. you can have the same buckets of capital, but in a liquidity crisis if your capital is not in readily-accessible form, you can't mobilize it to support your institution. life is more complicated, banks are more complicated. we need different cures. you could cut banks down to size, as simon suggests, you

still have to answer one question; who runs the infrastructure? anna discussed the infrastructure in the derivatives arena, there are many others. we need to think about that. even if you chop jc -- jcpenney -- [laughter] jpmorgan, far more formidable, into little bitty pieces, um, you'd still have to deal with the payment system on which all of those little bitty pieces still need to sit for us to have an efficient financial market infrastructure. and i don't know how little and itty and bitty those pieces should be. i've read the fisher paper, i've read many others. i see a lot of discussion of making banks smaller, not a lot of agreement on size or how to. the only specific proposal of which i'm aware in the policy arena is legislation by senator brown of ohio to require banks to hold no more than 2% in their

wholesale liabilities in relationship to gdp. and that's a number we need to think about that. other people have lot of other numbers. as dodd-frank demonstrates, these issues are imperfect. i think jerry comiss owe said that. this is tough. we can debate the size and the complexity issues, but we're in a difference world, so what to do now. and i think here we need the balanced regulatory framework i mentioned before, a few relatively simple things. the the dodd-frank framework, the basel framework, the global regulatory arena is very complicated with a lot of unintended, cross-cutting effects that i think about as, like, bumper cars. the studies that were discussed that my firm put out, um, were discussed a bit in the earlier panel try to take this on by looking at the array of major financial rules, mapping them out for both their key

provisions, intended effects and unintended effects. we don't say all of these unintended or even perverse results will happen. we map them out to see how each of the rules fits together if there is a coherent framework. dennis kelleher commented that this paper was supported by the securities industry and financial markets association. it was. i don't need a hobby. [laughter] but it's my work, my firm's work, and i welcome any comments and questions on it. and if there's anything wrong with it, we'll put out a corrected version. it was an attempt to be constructive and look across the framework of rules to see how they all might fit together. then we looked at the operational impediments to acting on rules. assume for the moment every unintended consequence in each of the rules in the map is wrong. could all of the rules that deal with the evil banker hypothesis and the liquidity, the capital,

a couple of the other systemic risks, should all of them be implemented in and i think the answer there is, no. we have an ideal global capital rules, but we don't have global accounting rules. we don't have the extraterritorial rules of the road. we don't have key, fundamental tenets of making a lot of rules work, let alone the supervision and the regulatory capacity to insure they do. so what are the priorities? in my opinion, first, they're finalizing the orderly liquidation authority in title ii. our third paper takes a hard look at this to see if, indeed, it is a robust end to too big to fail, and i think, simon, you and i will have things to debate on that and differences of opinion. but i think it's an awesomely strong first start. is it perfect? no. is it tested? not yet. but it is a meaningful statutory barrier to too big to fail.

we need to make that happen and make it robust. the regulators have all the tools they need. if a big bank, jpmorgan, b of a, files a, quote, living will and doesn't show the banking agencies that it can be resolved under bankruptcy, dodd-frank gives the banking agency the power to break that bank up into whatever pieces seem right to the agency o so that it can be resolved. if it's too complex, dodd-frank tells the agencies, you go, you tell the same complex banks no more cross-border branches, structure yourself in subsidiaries so you're easier to resolve. we need to hold the regulators accountable so that the big banks are, as the law requires, made more resolvable, not step away from that and say, well, it won't ever happen, let's just do something else, something else on which no one agrees and on which few specifics are yet in hand. orderly resolution i think is

important and vital. new capital rules, new liquidity rules and a keen eye to operational risk management, all of which can be best insured not only by new rules, but by tough standards that hold corporate boards of directors at the top and senior management very accountable for insuring that their institutions take no more risk than they can afford on their own. thank you very much. [applause] >> i promised each of the panelists a brief follow-up statement, so why don't we start perhaps in the same order that the presentations were given. scheherazade, would you like to add anything? >> the only thing i'd like to emphasize, and i think you've got the general gist of it, that we don't know where the next one's really coming from, and we don't know what it's going to look like, and we are not ready. i think i'd just like to emphasize that.

there are things that we can do to understand risk better because really it is a nuance of risk that has shifted, and the market's perception and reaction to that risk. it's more visceral, it's faster, the damage is much more, and we know the next time this thing happens and it happens for real like simon said and it's been reiterated, it's going to be much worse with. sorry. [laughter] >> anna? >> first off, i thought that the papers that karen's firm put together were really wonderful in their comprehensiveness and their clarity. >> thank you. >> and in really highlighting that there are so many unintended consequences and so many crosswinds even within the rules that have been adopted and those that are yet to be finalized that it does create a great deal of complexity risk even if one were to hold boards accountable. boards want to do the right thing. at this point we find that there are so many boards that are

struggling and spending so much time simply trying to understand the rules, the interplay of the rules. and then lastly on the operational difficulties, we're introducing quite a number of new entrants, if you will, into the system through dodd-frank whether it's the clearing, the central clearing, the dcos, and i think that we're all sort of understating the complexity that's involved in handling all of these and being prepared to sort of flip the switch even if it's phasing in to do that in a way that we all have great confidence in. >> simon? >> three small follow-up points, one for anna. to many of us, anna, who participate in these discussions who follow dodd-frank, who go to the various regulatory hearings, the complexity of the current regulations looks very much like the outcome of an enormous

amount of industry lobbying insistence on there being complexity, a lot of added rules, for example, around the volcker rule, which they then turn around and said, oh, now it's so complex, it's unworkable. so you'll have to excuse me and several other million americans -- [laughter] for feeling that the industry is playing a deep, clever and long political strategy essentially aimed at defeating financial reform. and, you know, prove me wrong. if as a result of karen's work it changes attitude and becomes cooperative with the cftc or the fdic or any other agency and really shifts away from this incredibly obstructive lobbying, that would be huge. that'd be terrific, and i'd be happy to write about that early and often. second point -- two points for karen. i read your papers, and i think they're very clear and very forthright, and you should be

commended by everyone for that. but two questions come to me. first of all, do you agree that under current circumstances and current market perceptions which are critical that very large bank holding companies can borrow more cheaply than is the case for smaller and medium-sized banks and that this may well be due, according to people like richard fisher and tom hoenig and sheila bair, it may well be due to the continuing perception that they're too big to fail? ..

so large and so complex, and there is no cross-border authority? >> great questions, and first i'll start off by again a green with you. the body of law and ruled is an incredibly consultative. some of that does pertain to the evil bank hypothesis, amended hereby the world very evil lobbyist tied hypothesis your country and. but i would add my own cause which is the cubicle regulator aided and abetted by the expert lawyer type of officers. and maybe my practice i spent a lot of time buried in these

rules, and when you say okay, i think i had it, here's the definition of proprietary trading. so some lawyer will think actually that was a case in 1842 in which that definition was not upheld by -- you know. so for this to be really clear we need another 52 pages in the federal register. that's maybe good lawyering but it is incoherent rule-making. i don't know what to do about it. i just cite this is one of my personal favorite hypotheses as a big problem of complex risk. and a lack of back to clearview standards to which we hold institutions accountable, i've written on the volcker rule. in my own views, bandit. that's fine. if we can define it, and. if you can't control it through -- we had to make clear decisions year. is current never, never land

largely constructed by people trying to do the job they have been given based on financial markets in place. and it's creating a very particularly dangerous form of systemic risks which gets to your two questions. we have a square peg which is the market perception that very big banks remain too big to fail, and the round hole of the orderly liquidation authority, which is a flat statutory prohibition in the united states to doing so. now, some people tell me that the answer to that, in contradiction, that congress would intervene and fix it somehow, and when you'll find a congress that fixes anything anytime, you let me know. the law is very clear. well, could the fed somehow override that, that very instant and lex may be title 11 and

dodd-frank doesn't get a lot of attention to it bars the fdic and fed from doing a lot of what they did in 2008, quite definitively. so at the very least it's hard if not impossible. so you have is very bad situation which markets may well be engaging in ongoing moral hazard, accounted for some of the differential that simon rightly references. at the same time, they are playing a morally without the safety net that would save them from their sins, meaning that market shock in the case of other operational solvency or liquidity risk at a large institution would be worse. it would be lehman on steroids. that's why it scares me. that's what we need the orderly liquidation authority. could it work in cross-border situations? does anything work in cross-border situation? not well. about 80% of u.s. bank offshore

assets are held in the uk, and that's particularly true for the wholesale oriented institutions like jpmorgan. yes, they are operating and 70 countries, but trust me, what they've got in bulgaria is not suspended. made in bulgaria it is. that's a different question. to chase in the united states or the uk it is an. those are after the operations. that's why the u.s. and the uk are very far along in what they call a crisis management group, to resolve that aspect of cross-border banking. is it done? no. should be finished? yes. and i think i can answer your question with a lot more confidence. >> i think one thing that you think about them we have a document is monetary policies still accommodated during this period. it's distorted risk, distorted returned. and that's a great market issue and concern which might be the next crisis. the other thing is, what we've all heard today from everybody

is dodd-frank isn't perfect but it's also, you know, has some useful element. as elements we got to think about and how to put the cause and effect is. we need to continue to think about it. the orthodoxy that dodd-frank is the only solution i think it's a scary one. because the world of markets in everything else evolves. and if we think dodd-frank is what's going to save us on the next crisis, we are like the french. people are going to go around it. >> simon, you've talked a bit about monetary fiscal policy. your new book deals with that. do you want to give is a very short observation on -- what's waiting for us in united states on monetary fiscal policy? >> i would encourage everyone to read the work of begin richard fisher on exactly this issue. they have some papers if you don't have time for that, a great editorial piece published

in "the wall street journal" september 2009 called the blob that ate monetary policy. they talk exactly about how -- too big to fill financial institutions undercapitalized taking excessive risk, having big losses, operating in a zombie form make marshall college in much less effective when you go into crisis. so the older transmission mechanisms to work. the fastening question, what would happen as we recover, if we assume we do recover. and how will that affect the ability of policy control the economy and the ability of the impact of various agencies will have an fiscal policies. on our fiscal cliff issues, i was a monarchy the destruction we're going to get from the tailspin after the election, around these issues, what i would worry about is not so much a direct impact on as much with the stock markets, much route with it will affect the efficacy. take the europeans and whatever your views of european risk and

throw in a european risk globally. they are running into u.s. treasuries because we so destabilize expectations. that's what happened in the summer of last you. what's that going to do to risks that spread in france or italy or spain? our ability to damage the world shocks in the mix is very important to i think i still we might have become back to us through the financial system and how their impacts -- just to clarify one thing to i don't think anyone here is evil. i think anyone is doing their job. [inaudible] [laughter] >> i'm not a lawyer and i hesitate to say this in front of a group of lawyers, but don't lawyers have a responsibility to delegate on behalf of their clients? >> that's what we teach, write. >> that's what i thought. >> within the bounds of a long stick i think that's what people are doing but i don't think -- i don't know if they were evil

because we have been invested or prosecuted. this is an open question. however, i would -- [inaudible] >> it's not my hypothesis. my hypothesis is people were doing their job and management was acting in what they perceived to be in the interest of shareholders, fiduciary duty after all. and that exactly what can lead you into huge disasters. people doing their jobs. and taking risks in a way. >> i don't think it is their job. what did quote doing their job due for the shareholder value of washington mutual, wachovia? let alone anyone of the very biggest banks which are trading at very small fractions of their book value. every one of the boards of directors of every one of those big banks and everyone of the ceos, including some incumbents were not doing their jobs, nor were there regulators. >> nor were the boards. >> i agree.

and i read in sheila bair's book that she felt in october 2008, the stock price was down 92% during mr. candon's tenure in the job. where were. weber board of directors? where are the board of directors today at the best way is break up the banks. compare price-to-book for the megabanks compared to many inside banks. again, this is what they are saying. by them and make them more efficient and get a better shareholder return. who is opposed to that? >> there has to be some long-term economic plan of how we'll manage the debt over the next 10 years but if we don't convey that to the market, we are setting ourselves up again. >> i will conclude by saying, someone was talking about the issue of why the u.s. dollar was the strongest currency and why the treasury, we are the most

sought after global currency. and an expert said you have to realize that the u.s. may simply be the most attractive force in the glue factory. i think we should try best to get out of the glue factory. that should be a resolution for the new you. please join me in thanking the battle for a wonderful conversation. [applause] >> coming up later today here on c-span2, we will bring a discussion on public assistance programs in the so-called safety net. that will be live from the new america foundation getting underway in about 45 minutes. actually about an hour. president obama remains off the campaign trail today, although vice president biden is still attending rallies. will have more in the second to the president is blanketed in new jersey to two or hurricane

damage with new jersey governor chris christie today. the president stop by fema headquarters to get an update. with him were the most director rich fugate, all my security secretary janet napolitano, defense secretary panetta, and hud secretary shaun donovan. the president again heading to new jersey. vice president biden continues campaigning for the president. you will be in a call of florida and we'll have live coverage of his remarks. that will start at 3 p.m. eastern. you will be able to see it on c-span. later, it's the republicans turn, senator rob portman and governor john kasich, live at 5:30 p.m. eastern c-span will have the also. later, it's the nominee himself, mitt romney will speak in jacksonville, florida, joined by former governor jeb bush. that stores live 8 p.m. eastern to see it on c-span. >> you were watching c-span2 with politics and public affairs, weekdays featuring live coverage of the u.s. senate.

on weeknights, watch key public policy events. and every week until it's nonfiction authors and books on booktv. you can see past programs and get our schedules at our website. and you can join in the conversation on social media sites. >> and a reminder will go live to the new america foundation here in washington for discussion on public assistance programs. and tell them to look at the quote the october surprise and effective may have on the election. >> host: we turn our attention now to the history of the october surprise, the event or events that happen before an election. reid wilson is editor in chief of the remote hotline. you wrote this piece, october surprise hit up and down. what you wrote is the october surprise is a long story and mostly exaggerated history. so why do we have the october surprises? what are the?

>> guest: this notion of the last minute big moment that changes the trajectory of any given race started back in 1972 when henry kissinger said just a couple days before the presidential election that was a possibility of peace in, during the vietnam war. just before the election it was seen as an effort to try to get those last few voters who are upset with president nixon over the the the more into this camp. it turned that he didn't need those extra voters. lately, and in every subsequent presidential race, the media is always sort of looking for the big game changing moment in the last month that can move a lot of undecided voters into one camp or the other. the problem though is that most of the time the so-called at dover surprise peter doesn't happen or actually can happen in september us are sometimes the early. i think the biggest thing that lived 2008 presidential election was the collapse of lehman brothers back in september 2008.

you remember in 2004 reports of president george w. bush bush's service in the alabama national guard popped up in the last couple days, last couple of weeks of the election. in 2000, there were reports of a dui arrest that bush had in connecticut a couple decades before the. in both of those cases, they didn't really move many votes. southern ocean of the october surprise is something that can completely alter a presidential contest really hasn't done that that much. >> host: right. we both noted example that george w. bush. he won. do we have evidence that an october surprise really swayed -- sways voters to? >> guest: eyesight a couple of examples in that article. it's not necessarily the presidential level but let's take a look at some of the races farther down about happening around the country right now. in indiana, the senate candidate richard mourdock looked like he was slightly ahead of democrats

joe donnelly going into the final debate between the two men. in that debate, mourdock made some comments about rape that were taken, well, that were able to be used in a democratic campaign ad. those comments have dominated the state's political coverage for the last couple of days. and by the way, it has sunk murdochs coldly. now donnelley leads in that race according to internal polls from both sides. so what i think we saw there was a real moment in which a last second sort of declaration by candidate, a big mistake, comment and a dover surprise if you want, a self inflicted october surprise changed the race. they can make it difficult they just don't necessarily always make a difference, and they usually don't on the presidential level. >> host: you also cite the example of the republican in tennessee. tell us about that race. would have been? >> guest: the congressman won

a big victory over democrat lincoln davis back in 2010. the freshman who won. i think he got the second highest margin against any incumbent democrat seeking reelection. in the wave of 2010. now just a couple of weeks before the election, one of the local papers has come out with a story about a woman who was a patient of his when he was a physician, a decade ago or so, who they had an affair and he is on paid urging her to have an abortion but this is not something ago civil and very conservative, socially conservative rural tennessee. and so now the conservative state democrat, the state senator who is running against him looks like he's got a chance now, where he didn't earlier. so here's an october surprise that isn't necessarily something that a candidate said but it's something that comes to indie media, timely document dump if you will. i think the "huffington post" was the first outlet to report this, this affair with a patient. and then the local paper just

reported another after that he had had with the patient a decade ago. so this is a race where a couple of timely document dumps have really made what should be a competitive congress -- contest into something that is a close race. >> host: what about this president election, what could be that's already happened a possible october surprise? >> guest: i think we've seen to game changing moment so far in this presidential contest. i can tell you when mitt romney's video about the 47%, his comments from a fundraiser that can make him when that video came out, republicans across the country saw their poll numbers dropped three to five points almost overnight. is that people really scared that a democratic wave was developing. because of such a damaging comment. it went straight to the heart of the worst characters of the republican party. that really cause a dramatic change, not only in the down ballot races but also in the presidential contest.

the race got so far apart there for just a little bit that it looked like some of the outside groups might decide to give up on romney's chances and work on fortifying the republican base. in the second game changing moment came along and president obama decided to nap through his first debate in denver. after that event the democrats saw a similar drop in the polls. they saw across the board, not just president obama but also senate candidates, house candidates. their numbers dropped, sort of a heart sickening fad for both sides. so a late moment, some kind of game changing moment like that can have a serious impact. still however because we had two of them right back to back, i think this will even out in the end, but romney was at its lowest moment after that 47% videogame out. and obama was at his lowest moment after that debate in denver. >> host: what about the storm? this is the "washington times" from yesterday.

game changers, five things to watch in the last week of his presidential campaign, and they put sandy s. number one. >> guest: i think that's a good point. i think there is a big risk when any kind of storm brews, and almost anywhere in the country. american history is replete with mayors and governors who handle snowstorms badly and losing reelection in next year. president george w. bush's approval rating never recovered once he started tanking after his mr. salmond of hurricane katrina. so this is a big risk i think the president obama. he had to show that he was a leader, minimize any damage, look like he's engaged, and by the way, there's no -- how does he do that? he flew back from florida, state of the white house. he was on the phone with governors and mayors all up and down at eastern seaboard all day, monday and tuesday. chris christie, the governor of new jersey to his state was hardest hit by hurricane sandy

has made some very favorable comments, a republican who spent a lot of time bashing obama, over the last couple of months, made some really favorable comments about the president. said he deserves a lot of credit for the storm handle but here's a moment in which the president can you show great leadership and an opportunity to sort of demonstrate the power of the white house and the power of incumbency, or he can screw it up and botch everything and end up losing reelection probably because of it. i think he's probably tilting towards the leadership side now. there have not been a serious critiques of obama's handling of storm's aftermath. meanwhile, what is mitt romney did you? he's in this bizarre sort of middle place where there is no role for an opposition candidate. there's no sort of acceptance script in what a candidate is supposed to do when one of these big storms comes along. so whatever move he makes can look sort of still aqua. so there's a risk for both sides, and i think a benefit

advantages obama, more than romney. simply because there's a defined role for an incumbent and not so much for a challenge of. >> host: and governor romney will be in florida today, holding three rallies there. go to c-span.org for our coverage of the. also vice president joe biden, we will show you governor romney in florida with the former governor of that state, jeb bush, and the vice president joe biden, he will be in florida as well. look for coverage today around 3 p.m. eastern time here on c-span, campaign rally in that state. also, reid wilson, flash forwarding to this friday when the jobs report comes out. could that be a game changer? could that be an october surprise? >> guest: i don't think so pick one of the things we've noticed is that over the last several months, you know, good news or bad news, these jobs reports really aren't moving numbers. i think that's largely because the average american doesn't really pay attention to jobs

numbers. they said a vaguely that unemployment is high pick their own personal economic situation is not good. like that's their view of the economy. their view is not going to be changed by what the bureau of labor statistics says but i think their view of the economy is whether they have a job, whether the neighbors have a job, house or comes up in financial and with the price of gas is. those are sort of the most obvious economic indicators. if this jobs report comes out and it's really bad news or it's really great news, there are a couple of -- personal i don't think people pay attention. second of all a significant number of people have already voted. millions of people in florida, millions of people in ohio, in every place where democrats are trying to drive early voting and absentee voting, they've already cast their ballot. so those ballots are banked. >> host: let's go to our first vocoder for weed -- reid wilson. bob is repugnant to go ahead. >> caller: yes, mr. wilson. how are you this morning?

>> guest: not bad. >> caller: what i would like to see if it's a game changer, have you looked at obama's birth certificate lately? where it says that his father is not an american citizen, that he was a citizen of kenya? and then when you go to the constitution, it says that in order to be able to be president, you have to have two parents that are citizens of the united states. >> guest: bob, it doesn't ask or say that. that's not accurate. the birth certificate issued something that's been well dedicated for a very long time. it is interesting to note just how much republicans, sort of the mainstream republicans actual candidates stay away from this. it's a clear example of how a

party wants to divorce itself from the most extreme fringe elements of its basic. >> host: atlanta, georgia, carlos, independent scholar. >> caller: good morning. [inaudible] please don't cut me off. to all the independent voters in the country, i have one thing to say. if you care about your fellow citizens and fellow americans, you know, as a community, how can you support a candidate for president who basically demeans and belittles half the country? i mean, it's just preposterous that people will feel, vote for a man who has disrespected their fellow americans, half the country. >> host: reid wilson.

>> guest: mitt romney was right in the sense that there are, we're subject deeply divided and lived there for 7% of america that will not vote for mitt romney. there's 47% of americans that will not vote for president obama. he didn't stop the beauty kept going and defined that 47% in a way that was a sort of, it was a serious gap. as i said earlier it caused a big drop in poll numbers around the country or republicans went up and down the ballot. so that was a problem. and by the way, i think i was the mode, the 47% video, when republican immerse started going down. there's one guy in particular who never fully recovered and that's center scott brown of massachusetts i think we're certain to get the feeling that mid-september when the victim that was sort of the last moment in which he was tied with democrat elizabeth warren. now most republicans in massachusetts and in d.c. think that brown is probably not coming back next year. >> host: i want to go back to

the "washington times," reid wilson, and again changes they said to watch out for in the coming six days. expanding the map is one that they have. mindful that the republican nominee has fewer path to reach the two under 70 electoral votes needed for victory >> guest: minnesota, by the way the state has gone the longest without voting for a republican around the country, remember back in the 1984 way, it still stuck with mondale. they are sort two competing theories about why the two campaigns are suddenly advertising in places like pennsylvania, michigan and minnesota. the run the campaign's argument is the map is expended.

polls are closing and republicans have a real shot at winning all three of these states, en route to a be a big massive electoral vote win. on november 6. the democrats say no, this is a testament. they they're trying to get the 270 electoral votes some sort of new hail marys when using minnesota and michigan and pennsylvania because they will not win a state like ohio or they're not going to win a state like wisconsin. i think both theories have a little bit of merit. republicans have a tendency, have had a tendency over the last couple cycles to go to states to try to expand the map a little late. i remember dick cheney visiting hawaii in the days before the 2004 presidential contest. both cheney visited new jersey, george w. bush visited california into 2000, the waning days before 2000 trying to put to very democratic states somewhere and play. so this is some kind of combination between a head fake torch try to get the obama

campaign to spend money somewhere where they wouldn't otherwise, or it's sort of a real move towards expanding the map. the interesting thing about this year by the way is that this is the first time since 2004 that we've had a normal election. remember, 2006 was a democratic way. 2008 was a democratic way. 2010 was republican way so we don't really know what a norman electorate looks like. we don't know sort of the racial makeup or the age make a. this is why you're seeing a lot of balls all over the place. and both parties are using polling models that are dramatically different from each other. ..

criticizing president obama. >> we reported on this last week we got a little hint these outside groups were going in. it's not just americans for prosperity is also the pro romney super pac. the campaign might be going up in the philadelphia market. this is interesting and by the way the obama campaign is now going to go by advertising in some of these states as well. minnesota, and michigan and pennsylvania for some of this late romney moved. pennsylvania i don't really buy

that its competitive. i've been keeping a close eye on it for a long time, but if it's going to be then it's going to be competitive because republicans are going to be able to turn out a large number of voters in the western half of the state, pittsburgh, johnstown the user be held by jack murtha is told by congressman mark chris was the only district in the country to vote for john kerry in 2004 and john mccain in 2008 the only from d to are in the election and those are the voters that president obama once derided to their guns in the region and they are the exact kind of white working-class voters having the most trouble connecting with. succumb if the republicans are going to put in play the will to live in a sneak attack way and on the western half of the state the obama campaign as well by the way they've got to turn out machine the philadelphia there's a reason some of these are not advertising in philadelphia.

they don't want the obama campaign to janelle to their turnout machine and that machine is going to start getting engaged and that is what is going to drive president obama's margin in pennsylvania. will be the philadelphia county area in southeastern pennsylvania. >> we are talking about a surprise in 2012. last year on twitter michelle said this tired of october surprise at this point. game for the beltway pundit. the majority of citizens are made up already and they've already voted. >> she's probably right. there are a lot of people that have already voted not a majority but a lot of people have already voted. there is -- we are at this point where there is a week to go. the average american is paying attention to something other than politics whether it is their own economic such regional recovering from storm damage in new hampshire, funny we are probably not going to see the presidential candidates in either of the swing states despite the fact they are so

close over the next couple of days simply because the logistics of getting around a place trying to clean up after a storm can be a real problem. look, what has happened, whenever doctors apprises the drive this has probably already happened. it's not like either of these guys is going to say it's a danger now. the next couple of days are going to be focused on not doing something stupid around the hurricane and the queen of recovery efforts and trying to turn out there basis i think you will start to see the announcements of the last 72 hours in their flights across the country and stopping the rallies all over the place. it will be interesting to me to see where the two candidates spend their last rally, where they hold their last event of the campaign. remember al gore went to florida at the last minute for his last stop in the 2000 race for the turned out to be the deciding state. in 2004 john kerry did his last event in ohio and ohio turned

out to be a deciding state so what's it going to be this time? romney camp out in ohio are going to colorado. colorado is a state that's probably the closest tossup stayed at the moment right now. every poll that we have seen has shown this within a point or two. so who knows. that will tell you where the battleground states are. >> host: robert, democratic caller. >> caller: yes -- i would like to say i believe hurricane sandy may go down as an october surprise. the oceans over all or 1.8 degrees warmer causing the coral reef to be decimated. the global warming climate change contributes to the size of sandy is contributed by hurricane sandy. >> host: all right, robert commenting on the last question for the viewers whether or not

it was a freak storm or climate change. let me throw in a maverick tweet. mr. wilson, i've been hearing a lot about this since a data company owned by bain capital october surprise. are you familiar with this? >> guest: i'm not. as i said earlier, any new revelations i don't think are going to change the race at this point. they are sort of cooked in. what they need -- the atmosphere rex that exist today are very likely to exist next tuesday. i don't really see a lot of things changing unless somebody does something really dramatic and i don't know, if somebody does something incredibly stupid, then this race will change, but i just don't see that happening right now. by the way, one quick word that i remember somebody talking about the early vote. pennsylvania is a state that you can go into very late. and the reason they are starting to advertise in pennsylvania so late is because there is no

early voting in pennsylvania. it's difficult to get an absentee ballot out there. so it's a state where the vast majority of people will let you go to the polls on election day, 96, 97% will vote on election day so they are subject to change in the state like that. most of the battleground, ohio, virginia, nevada, colorado, the early voting is so prevalent that in the state of the race two weeks ago it is basically well, we are going to be on election day. >> host: what about the state of ohio back-and-forth on the two campaigns yesterday about this ad the governor romney put on the air in ohio. and this headline this morning this is the new york times. two american automakers rebut claims by romney saying the ad is wrong. >> guest: this is something we have seen the romney campaign engaged and in the last couple of weeks, the last couple days really. they're trying to undermine obama's message that the although bailouts were great for the state of ohio.

that has proven to be very, very strongly that for the president. something that has vaulted him up among voters who he probably -- who he is not doing well with when other parts of the country, this sort of white working-class voters in specifically northeastern ohio. those voters are the ones who benefit the most from the success of the auto companies. so now the republicans need to sort of base that argument. they need to make it known to other ohio voters the although bailout was and great for the state and didn't do everything it possibly could. this is -- the advertisements are running is based on the bloomberg report that has been since corrected. it's not good for the campaign to have the ceos of two major companies, car companies in ohio in the state where 100 something thousand jobs are based on the auto industry coming out saying this claim isn't true. we aren't going to build jeep silver and china or ship jobs

overseas. not a fight the romney campaign wants to have but they have to have because this although bailout message has been so successful for the president. >> host: the front page of "the new york times" real quickly shows the poll of the ohio working class may offer a key second term for president obama because, unlike other states where he is trailing with white men, it seems to be tied or nearly even in ohio. but eager to gordon in virginia. republican thanks for waiting. go ahead. >> caller: thank you very much. maybe i'm wrong, but it seems to me the issue of benghazi and was a complete media blackout in terms of what transpired i require watching susan rice, i watched her go and watched the

25th presentation by obama for the united nations there was a terrorist attack and all the while there is a video there was no demonstration for the reinforcements for security enhancements. the attacks prior to that in a couple months, and by then goes on the campaign and says they knew nothing about it. well, my understanding is that the president has control and is

well aware in the situation room. he is aware of decisions being made. >> host: we got your point that it is an october surprise. >> guest: i wonder about this notion that the media is not covering what's going on in benghazi. icy cliffs and "the new york times" almost every day the national security writers have been doing quite a lot on benghazi and the aftermath of the attack and the prix lewd, the run-up to it. the conservative media believes that it is not being covered enough. whether or not it is there are guys at abc, as i said "the new york times" and "washington post" has done a little bit on that, reporting the actual underground scene. so i think this is an effort to undermine the president's advantage on foreign policy but i'm not sure that there is a lot.

i'm not fully versed in everything about benghazi and the attack surrounding it, but it does seem like there is a lot of coverage from some of the largest news organizations in america. >> host: cnn's dateline, sandy is the, "october surprise. we will have to see how this shakes out. ben and warburg tennessee. independent caller, go ahead. >> caller: yes, please don't cut me off. i just want to see that those bailouts of gm and chrysler benefited nascar because they took all the money the taxpayers gave them and they put it back into nascar because they were still sponsoring it. also, this president does not care about the middle class. we have only had one res on the

social security. my mother got a $30 raised, and this is going on for years now. he gets back in we will not get another one. the only reason he gave this one is because of the election. >> host: all right, reid willson. >> guest: with nascar, i will use this opportunity to plug the hot line a little bit if you don't mind. we put up an interesting post last week by two republican named michael shannon and will feltis on the consumer habits and how much they like their sports and which sports the like and how that correlates to the voting data. as you can imagine, nascar is a pretty republican sport but it's interesting to hear that apparently they're getting bailout money. i have not heard that. but check that out. go to hot lineon call.org and

see what that says about your politics. >> host: barre in indianapolis. democratic call. >> caller: hello? >> host: good morning you are on the line with reid willson. >> caller: i want to ask a question about donnelly and murdoch. the question is what richard murdock says about this is what god intends. i want to know how does he know what god intends and who introduced him to god? >> guest: it's an interesting concept of course. this is in reference to the indiana senate debate last week, monday, where murdock made these comments that a life, i'm going to paraphrase come av life conceived through rape is something that is intended by god. he was intending obviously to the life, not the act. but that particular statement has been, as i say, dominating the coverage in indiana for the last week. it's probably going to dominate

the coverage for the next weeks ago because of the attention is now focused on richard murdock. this is -- let's rewind a little bit and remind ourselves who richard murdock is. he ran to the right of lugar in the republican primary earlier this year. he beat lugar, five term incumbent who was seeking a sixth term. bet lugar in the primary and then the day after the primary said something like i love politics because i get to reflect my views on other people. that isn't a great way to appeal to moderate voters and that's the reason this was always a little closer than it should have been if lugar had been the nominee come he would be 75, 25 years so popular in the state of india of the people he's not popular with are those on the right side, the conservative side of the indiana republican party primary electorate. so they voted him out. richard murdock now a candidate that allowed to be relatively close. a couple of points here and there but everybody sort of expected him to win just because

indiana was a red state and is pretty socially conservative, and conservative across-the-board. for example, the gubernatorial panicky the candidate incumbent congressmen is easily going to hold on to that governorship in the last couple of days. so murdoch made their base closings of and he's given joe donnelly and opening to ahead in the polls. there's an internal democratic survey that i saw recently that had him up 47-40 and murdoch's response was to release the poll that showed the two of them tied at 42%. if you are releasing an internal poll that shows you tied any state you should be leading by five or ten points that tells me something. that tells me you're not having a very good day in your polling. >> host: republican caller. >> caller: thank you for speaking with me. you know, only good things come from god coming and god is not

of destruction and i don't believe the storm is any kind of judgment or anything like that. [inaudible] the president would not meet with those who -- [inaudible] >> host: we will go to joe evin dependent caller. >> caller: it is a dilemma dealing with these candidates and the caller is talking about god and everything. for me it is dealing with the question of abortion, dealing with finances. i look at people that claim you can abort in the womb and steadfast and allows such a thing to happen. that's completely ridiculous.

then he's got on the other hand you can baptize the dead. i'm voting for the lesser of two evils and it's really ridiculous one of the things i noticed about obama is when she gave his speech at zero interest in the debt ceiling the washington monument over his shoulder through the white house window so it was open for business. to me it is ridiculous because it is a symbol of 666 feet and i could have had a new secular order and hear the mark of debt and its 2012 the two candidates

i wouldn't invite to dinner. >> guest: isn't it ironic that the monument is an open for business and that we have to remember after the earthquake that we had a year ago or so the monument is still closed for structural repairs so here is an irony for you. >> host: let's go to pittsburgh pennsylvania democratic call. >> caller: thank you for taking my call. i'm calling about i think the october surprise is going to be that the voting machines themselves. i cannot understand why romney's sons have voted in this elections who would give him the contract? i think they should call foul play now and not wait until the damage is done to call foul

play. >> host: reid willson have you heard about this? >> guest: this is in reference to mitt romney's son, tag, an investment capital firm and this gets a little confusing that the firm owns another venture capital firm, they own a piece of the other firm that owns a piece of a company that creates voting machines that makes voting machines and they will be in some counties in ohio. so no direct link and nobody believes that there is actually going to be a sort of romney vote popping up because his son has some interest in a firm that invests in voting machines. but how this is going to happen and how the sort of the intricacies of each county's systems and the different kinds of voting machines and all these different issues when anything goes wrong whether it is because somebody forgot to press the right button or somebody forgot

to turn on a machine or a software glitch that an engineer didn't find. when one little thing goes wrong all is going to break loose and lawyers will defend on everything. both parties have literally thousands of lawyers ready to go on the election night with the are going to be at the polling places themselves to help people vote correctly or whether they are going to be dispatched to a swing state with a free count on election night where there will be thousands on standby. this by the way is the case all the time now in every presidential election since 2000. both sides have lawyer up very quickly in a sort of have those lawyers on standby ready to go, ready to fight any lawsuit because of course the stakes are so high. >> host: here is a head like this morning about early voting in ohio. the storm hasn't dampened the effort for early voting and it is the ohio secretary of state more than 1.2 million have voted

other than by mail or in person as of friday. that represented more than 20% of total votes cast in the 2008 race and today at 5:30 p.m. eastern on c-span we are recovering an event with senator robert portman republican of ohio and the governor also republican on the early voting in the state of ohio. so tune in to seize and then at 5:40 eastern time. we will go to jim next republican collar. go ahead, jim. >> caller: i highly disagree with reid on his that the benghazi affair is not the october surprise. i really believe if the debate could they knew all the facts of what happened there how could the president and secretary of

state and secretary of defense said and watch what happened in real time if everybody understood that's what happened to me the story was a plan attached by al qaeda. >> guest: they were not watching in real time to realize i don't want to get into the specifics of the actual benghazi attack or anything around it. however there is reporting to be done. the full story as it were will be reported in the investigations both by the house of representatives and by the state department. so the republican controlled house of representatives by the way. so we look forward to those things coming out. whether or not it is the october surprise, i'm pretty sure it is not. i'm sure most voters are not

paying attention to it. so we will see how this all plays out, but i'm not certain it's great to dominate the conversation simply because it hasn't yet. >> host: here is the washington times. senator bob kerry making a race of it. could he win the seat? >> guest: while his poll numbers were not looking good he decided to step down. the former democratic senator now running for his old seat which he gave up 12 years ago to go back to new york the recent polls have shown their race getting a little bit closer little but closer means he is no wonder down 20, he's probably down seven or eight. the republican state senator who is the republican nominee is going to win this race it might be closer than 20 but we are

down to nine points now and at the hot line we would rank the 20 seats most likely and nebraska is the second number two after being number one for the entire year. i expect fisher to become the next republican candidate senator from nebraska. >> host: democrats solidify the lead in the race is that's "the new york times" tim kaine, sherrod brown are looking good. >> guest: ohio is one of the reasons i talked about the sites in different polling earlier. the two sides see this almost diametrically opposed. they agree with most of the media polling that we have seen that shows sherrod brown leading by the digits if not the low double digits, tenorio 11 points. republicans see a very close race, republican treasurer josh windel running a lot closer to brown even if not, even ahead in one or two internal polls that might be a little optimistic but

they are still polls and have some validity conducted by the republican pollsters. so i think brown is ahead and the democrats are probably leading by four or five points. he will run a little bit ahead of president obama in the state. he appeals to some voters to think obama does not appeal to because he's been there for longer period of time. probably should not brown ends up being safe. bill nelson again survived an onslaught of more than $20 million in outside ad spending. he is running on a against connie mack. this is a race wild mac has had the potential to make it a real contest he's never been able to. nelson is running pretty far ahead, five, six points that's where it will end up on election day if not higher. virginia vote is a race that has been -- it was tight for a long time like 6,000 in a row that showed that 47 race. and then mitt romney's comments,

the 47% comments came out and tim kaine took the lead there. he was of the most of the public polling by four or five points going into the early part of october. i think that has tightened a little bit. we did see the "washington post" poll earlier this week showing him leading by a much larger number. i am not sure i buy that one. i do think that tim kaine is ahead by two, three, four points but on election day this is meant to be a close contest. i still give him the edge but george allen is not dead by any means yet. >> host: if you are interested in hearing from those candidates that reid willson just talked about, we've covered many of the debates of these closely contested senate races. reid willson editor-in-chief of the hot line. thank you for your time this morning.

sandy signals an area of extreme weather. this is the page has to say. even before sandy turned atlantic city monday a debate was raging and scientific government circles over whether the monster hurricane was a spawn of global warming. climate change activists pointed to sandy as the sort of extraordinary

the conclusion is that sandy would have happened with or without climate change. but that extra heat and humidity said its strength. this seems beyond dispute because of man-made warming more natural cycles or both, it is in an era of extreme weather events. a report this month by the world's largest insurance forum confirmed what has been widely suspected, the number of catastrophes has been rising dramatically since 1980 on all continents and with the deepest increase in north america. it soared from an average of 9 billion

that is what usa today has to say. contrast that with the "the washington times" editorial page. frankenstorm follies. it wasn't caused by the industrial revolution. this is what they say. a study by the national hurricane center predicted global warming would, over time decrease the number of tropical storms by as much as a third. the 2012 ipcc